[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
                  PRESIDENT'S FISCAL YEAR 2009 BUDGET 

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 13, 2008

                               __________

                           Serial No. 110-68

                               __________

         Printed for the use of the Committee on Ways and Means

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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            DAVE CAMP, Michigan
JOHN LEWIS, Georgia                  JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York         PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee            JERRY WELLER, Illinois
XAVIER BECERRA, California           KENNY C. HULSHOF, Missouri
LLOYD DOGGETT, Texas                 RON LEWIS, Kentucky
EARL POMEROY, North Dakota           KEVIN BRADY, Texas
STEPHANIE TUBBS JONES, Ohio          THOMAS M. REYNOLDS, New York
MIKE THOMPSON, California            PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois               JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon              DEVIN NUNES, California
RON KIND, Wisconsin                  PAT TIBERI, Ohio
BILL PASCRELL JR., New Jersey        JON PORTER, Nevada
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama

             Janice Mays, Chief Counsel and Staff Director

                  Brett Loper, Minority Staff Director

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                            C O N T E N T S

                               __________
                                                                   Page

Advisory of February 6, 2008, announcing the hearing.............     2

                                WITNESS

The Honorable Jim Nussle, Director, Office of Management and 
  Budget.........................................................     5

                       SUBMISSION FOR THE RECORD

Joseph E. Powell, statement......................................    49


                  PRESIDENT'S FISCAL YEAR 2009 BUDGET

                              ----------                              


                      WEDNESDAY, FEBRUARY 13, 2008

                     U.S. House of Representatives,
                               Committee on Ways and Means,
                                                    Washington, DC.

    The Committee met, pursuant to notice, at 10:09 a.m., in 
room 1100, Longworth House Office Building, Hon. Charles B. 
Rangel (Chairman of the Committee), presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                                                CONTACT: (202) 225-5522
FOR IMMEDIATE RELEASE
February 06, 2008
FC-19

               Chairman Rangel Announces a Hearing on the

                President's Fiscal Year 2009 Budget with

                        OMB Director Jim Nussle

    House Ways and Means Committee Chairman Charles B. Rangel today 
announced the Committee will hold a hearing on President Bush's budget 
proposals for fiscal year 2009. The hearing will take place on 
Wednesday, February 13, 2008, in the main Committee hearing room, 1100 
Longworth House Office Building, beginning at 10:00 a.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be limited to the invited witness, the 
Honorable Jim Nussle, Director of the Office of Management and Budget. 
However, any individual or organization not scheduled for an oral 
appearance may submit a written statement for consideration by the 
Committee and for inclusion in the printed record of the hearing.
      

FOCUS OF THE HEARING:

      
    On February 4, 2008, President George W. Bush submitted his fiscal 
year 2009 budget to Congress. The budget detailed his Administration's 
tax and spending proposals for the coming year, many of which fall 
under the jurisdiction of the Committee on Ways and Means.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
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February 21, 2008. Finally, please note that due to the change in House 
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    Chairman RANGEL. The Committee will come to order and I 
welcome Director Nussle here and it is unique since he has been 
on this side of the mic for so many years, and we welcome you 
to come here and share with us in support of your suggested 
budget.
    Since I have had the opportunity to chat with you briefly, 
we do hope that as we did with the stimulus package, at some 
point in time, we can review this budget to see what 
realistically we can accomplish, since it appears as though 
many of the things that you are suggesting have been rejected 
by the Congress. Many things that we are talking about in terms 
of the alternative minimum tax, you want to get rid of it and 
yet you are counting the revenues for it. It seems as though 
you would want to make permanent the $2 trillion tax provision 
which expires, and yet it is difficult for us to see how we 
could make up for that money.
    So it probably is a very precise political document and we 
are willing to accept that in the spirit in which you present 
it. But we do hope we can keep down the emotion and opposition 
to it in hope that at least in this last year of the 
Administration we can find something positive that we can 
accomplish together, as we did with the stimulus package.
    So, as you know, the Ranking Republican, Mr. McCrery, and I 
have tried desperately hard to at least keep the tone of our 
Committee's business to be civil. We hope that we can even be 
more positive in some areas, which we will work and perhaps 
suggest other you and we hope you will do the same, and at this 
time, I would like to yield to Mr. McCrery.
    Mr. MCCRERY. Thank you, Mr. Chairman. Indeed, we have 
worked together, Mr. Chairman, on a number of issues and will 
continue to do that. I hope that we can find some common ground 
on a range of issues this year, and work with the 
Administration to accomplish some things.
    On the bigger picture, you mentioned, Mr. Chairman, that 
the President's budget as put together by Mr. Nussle at OMB 
suggests a number of things that have been rejected by the 
Congress. I assume some of those things that you are thinking 
about include Medicare changes, Medicaid changes, some others. 
You are right, and probably the Administration doesn't expect 
the Congress to reduce Medicare spending at the level suggested 
in the budget by the traditional means of just ratcheting down 
reimbursement rates for providers.
    But I think the Administration does the public and us a 
service by including in their budget numbers that should shock 
us and tell us that we should be addressing these entitlement 
programs. We talk--we hear a lot of talk about earmarks and 
discretionary spending. That is peanuts. The real spending 
problem in this country is the entitlement programs and 
Medicare is squarely within the jurisdiction of this Committee. 
Social Security is squarely within the jurisdiction of this 
Committee. We should be addressing those.
    Maybe we won't choose--and frankly, I hope we don't 
choose--the suggestions in the Administration's budget for 
dealing with Medicare. But we ought not stick our heads in the 
stand and just hope that it goes away or is somebody else's 
problem when we leave.
    So, I congratulate Mr. Nussle and the Administration for at 
least putting in the budget some numbers that reflect the task 
at hand.
    Now, with respect to the tax provisions, it is true, again, 
Mr. Chairman, that the Administration's budget calls for making 
permanent the 2001-2003 tax cuts. It is also true that the 
Administration assumes the revenues from the alternative 
minimum tax, except for this year. They call for a 1-year patch 
with no pay-for for this year. But in the out years, they do 
assume the revenues from the AMT.
    That is not important, which revenues they assume and which 
revenues they don't assume. The more important consideration is 
the level, the overall level of revenues that they assume. The 
mix, we can do on this Committee. We can change that around.
    But the Administration, I think, takes a very responsible 
revenue stream assumption. They assume revenues slightly above 
the historical average of the last 50 years, unlike the revenue 
stream that would be produced if the majority's pay Paygo rules 
were adhered to.
    I have a chart that I distributed last time. I believe Mr. 
Nussle has a copy of the chart. If we could put it up on the 
screen so everybody could see it, the dotted line at the top is 
the Paygo revenue stream. So, if you adhere slavishly to Paygo, 
that is the revenue stream you get. You can see, it takes us up 
above 20 percent of GDP in revenues. That is significantly 
above the revenue stream that this government is accustomed to.
    Now, maybe some people believe we should raise taxes that 
much to create that level of revenues. I don't. I think that 
has the potential to change the nature of our economy in a very 
destructive way and we ought not go there. But that is where we 
are headed if we just blindly follow Paygo.
    Now, the bottom line gets well below the historical average 
of revenues. That is the line that represents extending the '01 
and '03 tax cuts and putting a permanent patch on the AMT with 
no pay-for. So, some could argue that is too low and that would 
be a logical and reasonable argument.
    Well, the Administration has chosen neither of those. I 
think, as I said, very responsibly projected revenues that are 
slightly above the historical average, which gives us a little 
wiggle room to deal with these long-term spending problems. So 
yes, Mr. Chairman, everything you said in your opening 
statement is true. But so what? The Administration, I think, 
has put forth in toto, never mind the dots and tiddles and the 
particulars, but in toto a very responsible budget that we, 
this Committee, ought to embrace in terms of the revenue 
projections and then this Committee ought to do its job in the 
entitlement areas and try to create reforms that allow us to 
live within this revenue stream. Thank you, Mr. Chairman.
    Chairman RANGEL. Well, I thank you, Mr. McCrery, and I 
thank the director. You may proceed as you feel most 
comfortable and we look forward to your testimony.

STATEMENT OF JAMES NUSSLE, DIRECTOR OF THE OFFICE OF MANAGEMENT 
                           AND BUDGET

    Mr. NUSSLE. Mr. Chairman, I am very honored to be back in 
this room and with friends and colleagues and people that I 
have worked with, debated with, fought with, argued with, won 
with, lost with a number of times. Some of those are extremely 
fond memories. I appreciate being back here.
    I also like the tone, I have to say. I appreciate the tone 
that you and the Ranking Member not only have set this morning, 
but being an interested observer of the Committee on Ways and 
Means as a former Member and alumni, it is also good to hear 
that tone when we are not here and we get to observe what you 
do. That doesn't mean you agree all the time, but the tone you 
set, I think, is a very responsible one. I congratulate you on 
that, because it obviously will set the tone for all of the 
Members here today.
    I enjoyed our talk, Mr. Chairman, and the opportunity to 
meet with the majority prior to the hearing to talk a little 
bit about some of the things where we might work together. We 
didn't come up with a very long list. In fact, I don't think we 
came to a conclusion. But the fact that you reached out and 
made that as a part of the conversation today, both publicly 
and privately, I would congratulate you on and I would look 
forward to continuing that conversation with you and the 
Ranking Member.
    If I may, I have a quick presentation I would like to do 
and then I would be very pleased to answer questions and begin 
the budget conversation.
    I want to thank you for having me here to discuss the 2009 
fiscal year budget and I want to tell you that, for the first 
time, the President presented this budget as an electronic 
budget, which is interesting. It is available on the Internet 
at www.budget.gov, and in fact this is the first time, as I 
have been made aware, that the Executive Branch has transmitted 
to the Legislative Branch a document in an electronic format. 
So it is somewhat historic, even if it will not necessarily 
carry the day.
    We are excited at OMB because I think it is an opportunity 
to involve the American people in this conversation a little 
bit more than they have in the past. In the past, you had to 
get one of these big volumes. Now, you know, it is more 
transparent. It is online. We already--the very first day, Mr. 
Chairman, that this went up on the web, we had over 660,000 
downloads of individual PDFs, of individual pages of budget 
information. I can tell you it was more than just the Congress 
that was looking at it or the media. People are interested in 
that. It's a good--it could very well be a good way for us 
moving forward to bring more transparency to this process, let 
alone a number of others.
    So, for those of you who have been part of this and have 
any criticisms or, for that matter, ideas on ways to improve 
it, we would be interested in hearing those, because we would 
like this to be a good product moving forward.
    The President, Mr. Chairman, asked me to write a budget 
that did five things. That is what I have tried to do in this 
budget. He asked me to prepare a budget that addressed the 
immediate economic challenges and to memorialize in the budget 
what you all have done in a bipartisan way. Second, to ensure 
that we have that economic growth and that it is sustained long 
term. Third, that we continue to keep America safe within this 
budget and do whatever the budget needs to do to keep America 
safe; that we had a budget that could balance in 2012. Finally, 
to begin to address, although never perfectly, as we know in 
this Committee as well as probably anyplace, begin to address 
some of the long-term spending challenges.
    So, let me just go through this quickly. I mean, continued 
economic growth, I really believe, and the President believes 
is one of the most critical elements if we are going to reduce 
the deficit, get back to balance and begin to address the long-
term challenges. It is one of the X factors.
    There used to be a time, as we all remember, when people 
used to try and claim that we could grow out of problems. We 
are not going to grow out of any problem. But growth is 
important for dealing with any of these challenges or problems. 
It is not the only thing, but it is very important.
    Obviously, what happened here in the short term, the 
bipartisan growth package which we include in the budget, prior 
to the final decision, we included it at 1 percent of GDP. So, 
it is in the budget at $145 billion instead of the final 
number. But what we tried to do is memorialize in the budget 
the fact that we needed a shot in the arm.
    You all, in a bipartisan way, did that job, came together. 
It obviously does have in this instance a $168 billion effect 
on the deficit, dollar for dollar. But is it worth doing, is 
the question. The President felt it was. It appears the 
Congress felt that it was, and hopefully that will have the 
impact on the short-term economic growth. So, I congratulate 
you on that and the President will be signing that later today.
    But as a result, the deficit for 2008 will grow to 2.9 
percent of GDP. In 2009, it will be at 2.7 percent of GDP. But 
this uptick in the deficit, I really believe, can be 
manageable. It is something that can be temporary. If we 
continue to keep taxes low, if we continue to work on economic 
growth and if we try and keep spending in check.
    I guess that is the point I wanted to make. I really don't 
believe that we are experiencing these deficits as a result of 
the American people being under-taxed. As this slide shows, and 
it is similar in some respects to the slide that the Ranking 
Member was showing, it kind of shows where the 40-year average 
is of taxes and it shows where we are currently. The tax 
burden, if you measure it by GDP, shows that it is at 18.5 
percent, which is still higher than the 40-year average of 
taxes as a percentage of GDP.
    So, I think it may surprise some people who assume that 
because the President and the Congress cut taxes in 2001 and in 
2003, there must not be enough revenue here. It must be that 
there is a lot less revenue coming into Washington. That is 
simply not the case, as this Committee knows very well. Revenue 
growth has actually been quite strong and running ahead of GDP. 
In 2005, it was 14.5 percent. We had 14.5 percent growth in 
revenue. In 2006, we had 11.8 percent growth in revenue, way 
ahead of inflation and GDP. Even in 2007, even recognizing the 
potential slowdown, we still had 6.7 percent growth in revenue, 
which increased as a percentage of GDP.
    So, we have an opportunity to, I think, look at what the 
real problem is here. I don't really believe that the problem 
is not having enough revenue. I really believe the problem is 
controlling spending.
    So, what we have tried to do in this budget is to do just 
that, to work on controlling spending. It is about choices, 
there is no question about it.
    The budget proposes to keep non-security discretionary 
spending at below 1 percent for 2009 and then hold it flat in 
the out years. The budget is about 2009. You are not going to 
adopt a budget for the next 5 years. But in order to show the 
challenge that lays ahead, not only to get back to balance, but 
also to deal with some of the other spending challenges, I 
think it shows that this, at least in order of magnitude, is 
going to continue to be a challenge.
    The President has also pledged to veto spending bills that 
exceed this reasonable and responsible level for 2009. That is 
another thing that has been put out there. We also proposed and 
we talked about this very briefly in chambers behind the 
Committee, it also proposes to terminate or significantly 
reduce spending on 151 programs that total more than $18 
billion for this year. What we did is we went through and we 
looked at what programs are achieving results, which ones are 
not? Which ones are you not able to measure as well? Which ones 
need to be reformed? Which ones need to be updated?
    So, it is not just about throwing more money at a problem. 
It is looking at whether that program is getting results. 
Because good intentions alone are not enough to keep a program 
going in my estimation and in the estimation of the President.
    The Ranking Member brought up earmarks. We also believe 
that earmark reform is necessary. Although it certainly is not 
the most important challenge that we have in front of us. I 
really believe the most important challenge is the automatic 
spending. Sixty-two percent now of spending is on automatic 
pilot. Sixty-two percent now is automatically going to occur 
regardless of anything else that occurs this year, unless 
Congress and the President come together and start making some 
adjustments in that spending, in that automatic entitlement 
nature. That specific action is what we are calling for in this 
budget.
    If we look at the current trends, they are just not 
sustainable. The current trend suggests that within the next 30 
or so years, all of the revenue that is coming in is going to 
be gobbled up, is going to basically be swallowed by 
entitlement spending, leaving nothing for some of the basic 
things that the government is called upon to do within the 
Constitution, such as national defense as an example.
    So, what the President has done is proposed a mandatory 
savings package of $208 billion over the next 5 years. Now 
that, I realize as we talked again behind closed doors, some 
are going to look at that and say that is just not tenable. It 
is an election year, it is too hard, we are not serious. But I 
did want to put it into some perspective.
    The $208 billion at this point in time, it represents less 
than the amount of money we saved in a bipartisan way in 1997, 
the last time we tried to break our pick on this rock. We did--
so we accomplished it in the Balanced Budget Act 1997 in a 
bipartisan way, with a Democratic President and a Republican 
Congress, we did more than what the President is recommending 
here.
    So, I realize everyone is--there will be many who say you 
are reducing spending too much, you are calling for too much in 
savings, but I think this is something that we can do. Just to 
take an example of Medicare, within this package, the President 
has proposed reasonable steps to get Medicare growth under 
control. He calls for $178 billion of savings over the next 5 
years. This means that Medicare would continue to grow.
    As we all know on this Committee, probably better than 
anyplace, Medicare is growing at about 7.2 percent. We are 
calling for enough savings to bend that growth curve so it only 
grows at 5 percent, which is exactly what happened in 1997. We 
found savings, we reduced the growth curve, and we were able to 
prolong a very important program. So, I believe this is a 
downpayment. Mr. Chairman, it represents about one-third of the 
overall Medicare challenge that is out there, that represents 
about $34 trillion now. This would help us deal with about a 
third of that problem if you took this up.
    So, starting with your opening statement, this may be one 
area. Maybe it is not. But if you don't address it this year, 
you and I both know this is creeping up on us. It is going to 
be more and more difficult to address and I think a downpayment 
would be important to begin.
    So, that is my presentation on the budget, Mr. Chairman, 
and I look forward to the opportunity to continue the 
conversation.
    [The prepared statement of James Nussle follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman RANGEL. Thank you, Mr. Director.
    The Secretary of the Treasury met with the full Committee 
on Ways and Means and impressed upon us how out of line our 
corporate tax rates were, especially among our competitors, and 
left us with the impression that, with some reform, we could 
drive down that rate to be competitive and at the same time not 
lose revenue.
    Are you familiar with that concept from Treasury 
Department?
    Mr. NUSSLE. I have heard--talked to both the Secretary, I 
have spoken with you about it briefly and others. So, I am 
somewhat familiar with that, yes.
    Chairman RANGEL. Do you believe that it is essential that 
we reduce the corporate tax rate?
    Mr. NUSSLE. I think what is essential is that we look at 
America's competitiveness in the world, recognizing that we 
live in a world market and our Tax Code now has an impact on 
whether or not business, industry, jobs, production, capital 
decides to locate here or decides to locate someplace else.
    Chairman RANGEL. Why is there no provision for that type of 
reform in your budget?
    Mr. NUSSLE. The President has always been, I believe, 
supportive of comprehensive tax reform and I believe that is 
probably the message, although I was not in the room for that 
conversation. My belief is that is probably the conversation 
that Secretary Paulson communicated as well. But no, we did not 
presume what that reform would look like in this budget.
    Chairman RANGEL. Well, the alternative minimum tax, I 
assume the Administration agrees with most taxpayers and 
Members of Congress, that this alternative minimum tax was 
never intended to fall on the--to be a tax burden on the 23 
million people. I assume that the Administration would want 
this not to fall on the taxpayers. Am I correct in believing 
that?
    Mr. NUSSLE. I think the Administration is more interested 
in making sure that the tax relief is permanent, which would 
reduce their tax burden below the AMT. Even if the AMT came 
back, it would be less than what they were paying prior to that 
tax relief having passed in the first place.
    Chairman RANGEL. If the Administration would want to remove 
on a permanent basis the alternative minimum tax, why would you 
place in your budget the receipt of the money, with the 
exception of next year, of receiving money from the alternative 
minimum tax? Is that not inconsistent?
    Mr. NUSSLE. Well, the President as I understand it believes 
that we can have comprehensive tax reform, that AMT should be 
part of it. That we shouldn't just patch the AMT, we should fix 
it. It can be done in a revenue neutral way, and he would look 
for an opportunity to work with you and the Congress to 
accomplish that. Which is what I believe Secretary Paulson 
probably communicated as well.
    Chairman RANGEL. But in your budget that you are presenting 
to us this morning, it is not a revenue neutral provision; it 
is a revenue raising provision in your budget is it not?
    Mr. NUSSLE. Well, current law raises--raises revenue, there 
is no question about that, as it does if we don't make the tax 
relief permanent, yes.
    Chairman RANGEL. So, what you are saying is in your budget, 
you are relying on us doing absolutely nothing to remove it.
    Mr. NUSSLE. The President believes that it is more 
important to focus on long-term tax stability which is making 
the tax relief of 2001 and '03 permanent. Would look forward to 
an opportunity to work with you on comprehensive tax reform 
that would or could include relief under AMT, or reform.
    Chairman RANGEL. How--could you just share with me how we 
would expect to be working with the President toward tax reform 
and removing on a permanent basis the alternative minimum tax 
and yet the document that you have before us indicates that you 
are depending on the alternative minimum tax being locked into 
place in order to receive the revenue that is necessary to 
bring some balance to the budget? Isn't that inconsistent?
    Mr. NUSSLE. I don't believe so, because we believe that 
this reform, tax reform, comprehensive tax reform, can be done 
in a revenue neutral way.
    Chairman RANGEL. I don't want to belabor this. But you do 
have revenue raises in the AMT in your budget, don't you?
    Mr. NUSSLE. The AMT, if it is not fixed, will raise 
revenue, yes.
    Chairman RANGEL. You have it presented in your budget as it 
is not being fixed, is that correct?
    Mr. NUSSLE. Well, no. I mean, we are looking forward to an 
opportunity to work on comprehensive tax reform that is revenue 
neutral.
    Chairman RANGEL. Okay, is there anywhere in your budget 
that you make adjustments as to how you would like to reform 
the tax system?
    Mr. NUSSLE. No, not in the budget.
    Chairman RANGEL. So anything that we want to do as relates 
to your budget, as long as it is revenue neutral, you have no 
objection to it?
    Mr. NUSSLE. Well----
    Chairman RANGEL. I mean----
    Mr. NUSSLE. Talking about comprehensive tax reform?
    Chairman RANGEL. Can you think of any way to make permanent 
the removal of the AMT, which should never be in the Tax Code 
anyway, without comprehensive tax reform? Is there any other 
way to do it?
    No.
    Mr. NUSSLE. Probably not. Probably not.
    Chairman RANGEL. Having said that--no. Okay.
    Having said that, you do not provide for tax reform in your 
budget. Now the answer to that is, yes. I guess what you are 
saying, or maybe I didn't understand, is notwithstanding what 
you have or don't have in the budget, we are at liberty to 
attempt to have some reform.
    Now, the President had a commission which made certain 
recommendations. Could you tell me whether or not the President 
intends this year to bring those recommendations in any form to 
the House? To this Committee?
    Mr. NUSSLE. Well, the recommendations have been out there 
for more than 2 years. What form would you like?
    Chairman RANGEL. What form do we normally have when an 
Executive Branch has a tax recommendation? We don't get it from 
the commission. We want to do what the President would suggest. 
Now, the President has not suggested anything to us in terms of 
the removal of the AMT or the forming of a very complicated, 
overburdensome system that we all have complained about. So it 
is not what I would suggest. I am asking, can we expect any 
recommendations from the President of the United States as 
relates to corporate and individual tax reform? And/or the 
making permanent the removal of the alternative minimum tax?
    Finally, why would there not be any provisions made in your 
budget to indicate that is what we should get ready to deal 
with the best we can, that is all.
    Mr. NUSSLE. Well, Mr. Chairman, I think that is a standard 
that even--even this Committee doesn't abide by. The tax reform 
that you proposed is not in legislative form. So, I mean, there 
is no way to compare any of the tax alternatives or ideas out 
there in any kind of official format. It is all done in--the 
one that came from the commission were done as recommendations. 
The Congress----
    Chairman RANGEL. Recommendations to the President.
    Mr. NUSSLE. Well, or to Congress.
    Chairman RANGEL. You mean, we should take a look at the 
President's commission? What did the President do with his own 
commission as to their recommendations?
    Mr. NUSSLE. Well, if the chair would like to look at those 
recommendations, I am sure you can.
    Chairman RANGEL. I have looked at them. I don't know 
whether the President supports any of them.
    Mr. NUSSLE. Okay.
    Chairman RANGEL. Could you tell me whether we should intend 
to hear from the President?
    Mr. NUSSLE. I can't--no, I can't. I don't know if you will 
hear any more from him on this. But I can tell you that----
    Chairman RANGEL. So it could very well be that, as far as 
this President is concerned, tax reform is not on his list. It 
hasn't been for 7 years and, from your budget, there is no 
reason why we should expect to hear from him this year either 
as relates to the alternative minimum tax removal or to the 
reformation of the tax system as----
    Mr. NUSSLE. Well, the President hasn't seen tax reform come 
in anybody's budget that came from Congress, either, so----
    Chairman RANGEL. Well, I sent--I have a bill, which 
obviously you referred to. Has the President referred to this, 
or the Secretary of the Treasury----
    Mr. NUSSLE. Can you tell me what the bill number is and I 
will----
    Chairman RANGEL. You referred to it. The one that you said 
that I introduced. That one, the same one.
    Mr. NUSSLE. What bill number is that, and I will take a 
look at it.
    Chairman RANGEL. It is the same number it has when you 
first heard about it.
    Mr. NUSSLE. I am not--I am not familiar with what number it 
is.
    Chairman RANGEL. Okay, then. We will put everything on hold 
until I send you the number and then I will be able to get a 
better answer to my question. So, that is all it takes, for you 
to find a number, and then we will start immediately talking 
about tax reform.
    I would like to yield to Mr. McCrery.
    We do have a vote?
    Mr. MCCRERY. It is a vote on a motion to adjourn. I plan to 
skip that vote.
    Chairman RANGEL. I will skip it with you.
    Mr. MCCRERY. I don't think the history of the country is 
going to turn on the balance of this question. But the rest of 
you go and the Chairman and I will----
    Mr. LEVIN. Who introduced it?
    Mr. MCCRERY. I think it was somebody in the minority.
    [Laughter.]
    Mr. Chairman, you and I have had this discussion and you 
know my view on this. My view is that it is the Congress that 
is responsible for passing legislation. Generally, it is 
Congress's responsibility to introduce legislation. In fact, 
the President can't introduce legislation.
    It is squarely, as I said in my opening remarks, in the 
jurisdiction of this Committee to come up with tax reform, 
Social Security reform, Medicare reform. We have not done it.
    I think you know, Mr. Chairman, that if you and I developed 
a tax reform plan on a bipartisan basis and could actually get 
the support on this Committee to pass it and pass it through 
the Congress, I bet you a dollar to a doughnut the President 
would sign it. If he saw sufficient progress being made on a 
bipartisan basis in the area of tax reform, I bet you a dollar 
to a doughnut, if we invited him, he would participate in those 
discussions.
    The track record over the last, say, 3 years of the 
President making specific proposals for big reforms in terms of 
the Congress's response to those suggestions is not good. In 
fact, one of the criticisms of the then minority now majority 
Democrats when the President proposed some specifics on Social 
Security reform was that, oh, you didn't consult us, you just 
came out with this stuff.
    So, one can understand how he is a little gun shy about 
just coming forward with specific proposals. It is not going to 
happen that way, we know that. It didn't happen with Social 
Security and then last year when he made significant 
suggestions, specific suggestions in the area of health reform, 
health insurance reform, again, you didn't consult us, you just 
came out with this stuff and it's terrible.
    So, now you're saying, oh, gee, give us some more terrible 
stuff that we can pick on. Mr. Chairman, I mean, come on, you 
weren't saying that with a straight face. Not inside, anyway. 
Outside, you do pretty well. But inside, you know, that's not 
what this country needs.
    This country needs for you and I to work together, for this 
Committee to work together on a bipartisan basis and develop 
what we think is a good tax system for this country that, yes, 
lowers if not eliminates the corporate tax rate, provides a 
modern tax system that is more efficient, that is competitive.
    There is tax competition in the world today. We better 
get--we better become aware of that fact. Because if we don't 
become aware of it and we don't adjust our tax system to be 
competitive, we are going to lose more capital to other 
countries around the world. Which means they start creating 
more jobs and we create fewer jobs.
    So, these are very serious questions that this Congress 
ought to be dealing with, irrespective of what the President 
proposes. Any President. It is our job. It is our duty. It is 
our obligation. We are shirking that every year that we go by 
without doing anything modernizing our Tax Code, reforming our 
entitlement programs.
    So, I am with you, Mr. Chairman. As you know, I have been 
ready to talk with you, work with you to develop a bipartisan 
approach to taxes and entitlement. For whatever reasons, we 
have not been able to make much progress in that regard and I 
am very saddened by that. But don't blame the President, Mr. 
Chairman. It is as much our fault as it is his.
    I yield to the Chairman.
    Chairman RANGEL. I am certainly glad that you do, because 
we have had some pretty open and honest discussions with the 
Secretary of the Treasury as relates to corporate tax reform. I 
don't know what more I can do. I put out a talking bill out 
there, which the director wanted to know the number of. H.R. 
3970.
    It would seem to me that they could set a climate as to the 
direction that they would want us to go. Of course, it is up to 
us to legislate. But the whole idea of having the director here 
today is suggesting to us the direction in which the 
Administration would want to go. That is all it is, giving us 
direction. Suggesting to us.
    So I am a little surprised that you would say that in the 
area of tax reform, especially as relates to corporate tax 
rates, especially since the President is suggesting that we 
make permanent his tax cuts of 2001 and 2003, that we should 
not get any direction or response at all. This is especially so 
since he had a commission.
    Now, the director would suggest that we respond to 
presidential commissions, which of course shows how long he has 
been away from the Congress. But having said that, it would 
seem to me that we should get at least a response from the 
President to his own commission to give us some direction as to 
the area in which he would like to see the Congress, the House 
and this constitutional Committee respond.
    But it suffices to say that the record will be made clear 
that the President did not see fit to suggest any of these 
reforms in his budget. But he will leave that up to the 
imagination and discretion of the Members of the Congress. So.
    Mr. MCCRERY. If the Chairman will yield?
    Chairman RANGEL. I yield, of course.
    Mr. MCCRERY. The President's budget does set out a general 
framework for going forward, both in terms of spending and 
revenues. While it is true that the President does not suggest 
a specific reform for doing away with the AMT, one can look at 
the level of revenues that the President proposes and determine 
where he thinks the appropriate level of revenue should be for 
the Federal Government and then we work with that.
    Now, he said we ought to make permanent the '01 and '03 tax 
cuts. I think if we were to come--if you and I were to come up 
with a tax reform proposal that didn't make permanent every one 
of those '01 and '03 tax provisions, but pretty well set 
revenues along the path that he has suggested, he may very well 
embrace what we come up with on a bipartisan basis.
    The President's budget is required by law. It is not set in 
stone and it is not gospel. It is something that the President 
has to do. We get the opportunity to have Mr. Nussle and later 
today Mr. Leavitt and others from the Administration talk about 
suggestions for the budget.
    But the budget, generally speaking, sets out parameters for 
spending in discretionary areas. It used to be 13, now I think 
it is 12. Not sure, I lose track. As I said, it doesn't matter 
much. Then it sets out broad spending ranges for entitlement 
programs. It projects what those spending ranges will be, based 
on current law, which the Administration can't change. They can 
make suggestions, as they have in this budget, which I happen 
to think will not pass as outlined in the budget. They are 
just, as I said in my opening remarks, ratcheting down 
reimbursement rates.
    That, to me, is not reform. That is just creating savings 
by reducing reimbursement rates. It is time we got past that, 
Mr. Chairman, and started thinking seriously about fundamental 
reforms to Medicare and not just squeezing more out of 
providers.
    So, the President's budget is a general document required 
by law that sets out what the spending should be and what 
revenues should be. The President has done that. That is his 
obligation.
    Now, if you get into all the assumptions, if you get into 
all the specifics, yes, the President could use this budget to 
suggest specific reforms, as he has done in some areas in the 
past. But it is not required by law that he do that and, as a 
practical matter, as we have seen with the examples of Social 
Security and with health insurance, it is not altogether 
productive for the President to make specific suggestions.
    You know my opinion, Mr. Chairman. My opinion is that we 
get more done if we work here in the Congress on a bipartisan 
basis and then include the President when we get down the road 
far enough that we think we might actually be able to agree on 
something. We include the President, bring the Administration 
into those talks to finalize them and make them law. Because 
obviously the President has to sign legislation.
    But we ought to be the ones, again, developing legislation 
and kind of searching for that kind of common ground that we 
can find. I don't believe--even if Democrats were to pick up a 
bunch of seats in the '08 elections and pick up a bunch of 
seats in the Senate in the '08 elections, and even if you pick 
up the presidency in the '08 elections, I don't think you are 
going to be able to do Social Security reform or Medicare 
reform or even tax reform on a partisan basis. It is just too 
big, it is too politically sensitive. It has got to be done on 
a bipartisan basis. The place to start is in the Congress.
    So, I appreciate the Chairman's remarks and I understand 
where he is coming from. It would be swell if we had a 
president with a magic wand that could just say this is what 
ought to be and then magically we agree and pass it. But that 
has never happened before, at least not in my lifetime. It is 
not likely to happen now, with any either Republican or 
Democratic president
    Now it think we're finally getting some Members back, Mr. 
Chairman, and you and I can pass the baton.
    Chairman RANGEL. Well, I just want to say, I figured if you 
talked long enough I would find something to agree with you on. 
I do agree, as we said much earlier, that we will not be able 
to tackle these serious, complex Social Security, Medicare 
problems unless it is done in a bipartisan way.
    I guess what you are saying is that if we dismiss this 
whole budget concept completely now, and then get on to see 
what we can do, we might make a lot more sense than trying to 
get a responsible answer as to how do you put AMT in, abolish 
it with one page and then raise the revenue to balance the 
budget on the other.
    Mr. Levin is back and I hope that you have been able to get 
some benefit in the direction which we--we are not going to 
hold you seriously to this document. You had to do it, the 
President had to do it. We are not going to do it. But to the 
best that you can, if we find any areas that we can work 
together, we will be calling upon you to give your guidance, 
because that's the way it is.
    I would like to yield to Mr. Levin.
    Mr. LEVIN. Well, Mr. McCrery, I missed your questions. But 
if you agreed with our Chairman, I think it kind of sums up 
where we are with this hearing. Maybe nobody else needs to come 
back including me.
    Because, you know, we have a sense of affection for former 
colleagues. But, you know, your response to Mr. Rangel on the 
AMT is I think so totally unpersuasive. I don't think we can 
find common ground when essentially a budget is built on sand.
    I don't think--they talk about budgets being dead on 
arrival. I think this was dead on its production. The AMT is a 
vivid example of it.
    We all know that we can't continue it. So, any budget that 
just simply assumes continued revenues from it is not credible.
    As I mentioned to you in our discussion when you met with 
us on the majority side, the same is true of a budget that 
proposes to eliminate the manufacturing extension program. We 
go through it every year.
    The same is true of a budget that eliminates the COPS 
grants. I mean, that isn't going to happen. This major 
reduction in Safe and Drug-Free Schools, you know it isn't 
going to happen. The LIHEAP cuts, we are talking about more 
money for LIHEAP. The weather yesterday I think illustrated the 
need for it.
    The revolving fund for water, you cut it when we need to 
dramatically increase it with all the problems we have. CDBG, 
you know it isn't going to be cut 30 percent.
    You know, Mr. McCrery, it is interesting, this chart of 
yours. But I think what needs to be discussed is not kind of 
the end of this process, what percentage we end up with, but 
the journey that is taken necessary to come out with whatever 
percentage we agree with. That is why this budget is 
essentially useless.
    I mean, it is essentially useless, because it is built on 
assumptions that everybody in this town knows will not happen. 
I mean, after next year, there is no money for Iraq and 
Afghanistan. Right, Mr. Nussle?
    Mr. NUSSLE. No, that's--that is not the case.
    Mr. LEVIN. There's money for Iraq and Afghanistan directly?
    Mr. NUSSLE. We have $70 billion in for Iraq and 
Afghanistan.
    Mr. LEVIN. For next year.
    Mr. NUSSLE. Yes.
    Mr. LEVIN. I see. But after next year?
    Chairman RANGEL. The war is over.
    Mr. LEVIN. There is nothing budgeted, right?
    Mr. NUSSLE. That's correct.
    Mr. LEVIN. I mean, no one believes that. I mean, we have 
General Petraeus talking about a pause in any troop reduction 
in the summer. So, what is the use of bringing a budget when 
after next year there is no money for Afghanistan and Iraq? Who 
is going to believe that?
    So, I think, Mr. Chairman, you have essentially summed it 
up. We ought to essentially assume this budget is something we 
won't deal with. We will have to find common ground.
    I remember some years ago now, there were some honest 
budgets and they called for some difficult measures. That was 
true in '93 and '94. There was, I suppose, a political price 
that was paid for an honest budget.
    But let me just say, I think there is a real political 
price that is paid among the public generally when there is not 
an honest budget. As our Chairman said, you were given the 
responsibility and used your talents to come up with something 
that is essentially--that will essentially be discarded.
    I yield back.
    Chairman RANGEL. Mr. Herger.
    Mr. HERGER. Thank you very much, Mr. Chairman.
    Mr. Nussle, I want to thank you for joining us. I want to 
thank you for your leadership during the years that you served 
on this Committee on Ways and Means. Your leadership, leading 
on the Budget Committee, the responsibility, the looking at 
life as it is and making some very tough decisions. Many of the 
thoughts and leadership that you gave us at that time.
    I would like to ask a question if I could on the reality of 
the policies that we have here in Congress as related to what 
perhaps static type of addressing some of these policies might 
be. Specifically, I want to go back to the 2001, 2003 tax 
reductions that we had that allowed our businesses, those who 
create jobs, to be able to keep more of their own money. What 
might have been projected just from a static standpoint, 
despite the fact that we are beginning in a recession at that 
time, despite the fact that we had 9/11, war on terrorism, 
Homeland Security, all of this which adversely affected our 
budget.
    These tax reductions that we had, 2001, 2003, which helped 
create the incredible economic growth and investment 
opportunities and an astounding period of job creation. I come 
from a small business background myself, and I often think what 
will happen to workers and small businesses if this tax relief 
is not extended. Most people may not realize that in less than 
3 years, nearly 116 million taxpayers will be facing an average 
tax increase of $1,800. This greatly concerns me. I think it 
should concern every American and every taxpayer. I believe 
this Committee and Congress need to act as the President has 
suggested and permanently extend relief as soon as possible.
    I am particularly concerned about the effect this massive 
tax increase is having on employer decisionmaking today, right 
now. How uncertainty about tomorrow's tax situation is having 
an effect on workers and job growth today.
    I would like your thoughts on this issue.
    Mr. NUSSLE. Well, first of all, I couldn't agree with you 
more that the tax relief of 2001 and 2003 was exactly the right 
thing to do at the right time in order to give certainty, give 
the kind of economic growth that we saw and the numbers that I 
stated about the revenue coming in is part of the proof. I 
think the expansion of our GDP, all of that can be attributed 
to this.
    Also, I share your concern about the--about what happens to 
business and job creation and capital formation and the ability 
for us to continue to see that kind of growth going forward if 
we don't give some certainty to the people who are planning 
their tax future, their economic future right now, and 
factoring in at least some prediction about what may happen to 
that tax relief package. I think in part, that may be what is 
happening right now to some may say spook the marketplace into 
giving it the jitters. It is not all of it. Certainly, there 
are many factors.
    The other part of your question assumes, too, that you can 
go back and say, well, this is exactly what happened. 
Obviously, that is not the only--as you stated, 9/11, Homeland 
Security challenges, two wars, two fronts of a global war, I 
mean, all of that had impact. So, you can't just say, well, 
it's one for one, a direct relation, cause and effect.
    But there is no question by most independent folks, 
including Alan Greenspan and others, said it was exactly the 
right tax relief at the exact right time.
    Mr. HERGER. Thank you, Mr. Director.
    One of the most serious problems we are facing, as you 
mentioned in your testimony, as a nation is the future of 
Social Security and Medicare entitlements. I want to commend 
the Administration for offering some constructive proposals to 
address these fiscal challenges. The Trustees' Report that 
Medicare is going to start paying out more than it takes in 
from taxes in just 3 years. Social Security goes into the red 
just a few years later.
    All told, under the current system, the taxpayers would be 
on the hook for $53 trillion. Because Congress is currently 
spending the entire surplus from the trust funds every year, 
this will result in the type of crowd out effect as trust fund 
IOUs come due and a growing portion of discretionary spending 
is dedicated to repaying borrowed surpluses. How do you or how 
do we dig ourselves out of this hole? What are the risks, as 
John F. Kennedy, said to comfortable inaction?
    Mr. NUSSLE. Well, if I may, I will respond very quickly. It 
is the same--using your analogy, if you are in a hole, not only 
do you have to stop digging but you have to start filling it 
back in shovelful by shovelful. Again, I think--I take it very 
seriously what the Committee has told me today, that you are 
not going to adopt these reforms when it comes to Medicare as 
an example.
    I am not suggesting that these reforms are perfect or are 
the only way you can resolve this. You are going to have a 
hearing this afternoon where the Secretary of Health will, I 
think, engage in a health care reform discussion with you that 
hopefully will go even further.
    But the order of magnitude I would suggest to you is about 
right, taking one-third of the problem, knowing that as you say 
that, in just 3 years, we're running the deficit and in a 
number of years for Social Security, I think 2017, same type of 
thing, that the order of magnitude is let's try and tackle at 
least a third of this right now, knowing that you still have a 
few more shovelfuls that you are going to have to deal with 
down the line.
    Mr. HERGER. Thank you very much.
    Chairman RANGEL. Mr. Director, I think I heard you say that 
former Chairman Greenspan supported the tax relief. I heard him 
saying that, too, during our hearings. But it seems that's 
inconsistent with him saying in his book that he meant only if 
those tax cuts were accompanied with program cuts. Was that 
your understanding? That he--he assumed that there would be 
program cuts and not deficit borrowing in order to support the 
tax cuts.
    Mr. NUSSLE. I remember what he said at the time as well, 
and he did say that. His book does go on to say that we have to 
reduce spending. That is in part why we present the budgets 
that we do, that do reduce spending.
    Chairman RANGEL. I know. But he didn't support the tax cuts 
as it ended up. Because it was not accompanied with program 
spending.
    Anyway, I admit that it was a little confusing.
    Mr. Lewis is recognized.
    Mr. LEWIS OF GEORGIA. Thank you very much, Mr. Chairman. 
Thank you, Director Nussle, for being here today.
    Director, this budget is not about change. This budget is 
nothing but business as usual. It doesn't address the worries 
and the fears of the American people. It doesn't address how we 
got here. It only makes things, in my estimation, worse.
    Do you think that this budget will inspire the American 
people with red ink as far as the eyes can see? Is this the 
best that we can do in America at this time, at this juncture 
in our history?
    I would like to know, is this an honest budget. I think you 
told Mr. Levin that there is not any money in this budget for 
the war in Iraq and Afghanistan after next year. That is not 
coming clean. That is not putting all your cards on the table 
face up with the American people.
    I would like for you to respond.
    Mr. NUSSLE. First of all, it may not be perfect. When you 
ask, is it the best that you can do, there are other 
alternatives. Certainly, raising taxes is an alternative. 
Certainly cutting spending even more is an alternative in order 
to deal with the red ink.
    But the choice that we made at a time of war, with an 
economic downturn, knowing that the Congress and the President 
are helping to run up the deficit by putting a shot in the arm 
of economic growth, knowing that, we believe this is the best 
balanced approach that you can do at this time.
    But no, I'm not going to--to my friend from Georgia who I 
have known a long time, I am not going to tell you everything 
in here is perfect. We had to make choices. There are some 
things that are harder choices than others. I acknowledge that.
    But when you say at this time, I think that is the key part 
of the question. At this time, at war, with a downturn in the 
economy, given the challenges that we face, I do think this is 
a balanced approach that isn't perfect, but may be one of the 
best alternatives that we have.
    I would be interested to see what other alternatives 
Congress comes up with.
    Mr. LEWIS OF GEORGIA. Mr. Director, do you think it is fair 
at this time of war to come here and argue in this budget that 
we should continue to make the tax cuts of 2001 and 2003 
permanent?
    Mr. NUSSLE. I do. The reason is because it is a fundamental 
disagreement that I think we may have and that is, whose money 
is this to begin with. In my estimation, when I look at my 
budget, when I look at all these things, this isn't my money 
I'm talking about. These are my neighbors' money that I live 
next door to, that you live next door to. It is not mine to 
give out, it is not mine to take. It is not mine.
    If you start with that fundamental belief, I think you may 
have a different--at least I have a different approach to it. I 
look at it and I say, I don't think we need any more revenue 
coming into Washington to solve these problems. We ought to 
solve them with the revenue that is coming in because it is, as 
I showed you, above the 40-year average. So, we are getting 
more revenue than usual. That ought to be enough to solve, 
quote, unquote, assuming you solve anything here, solve 
problems that Congress and the President decide to address.
    Mr. LEWIS OF GEORGIA. Let me move to another area, Mr. 
Director.
    Just the other day in my state of Georgia, 43,000 people 
answered a help wanted ad. They wanted one of 2,500 new jobs at 
a foreign-based car maker opening a plant. I have heard the 
Administration position on trade and I think new jobs in 
Georgia are a good thing, are good for America.
    But now is not the time to pin the hopes of millions of 
Americans on the talking point about free trade and its place 
in our economy. What is your recommendation to these people?
    Mr. NUSSLE. Well, I would say to my friend that I am given 
a lot of responsibility by the President but one of them is not 
to be the trade representative on behalf of the Administration. 
I do have some experience, as you know, being on this 
Committee. But I would rather--I would rather that Ambassador 
Schwab be given that question and allow her to answer that.
    I mean, my view is your view. It is good when jobs are 
available in our country. Trade often makes that possible.
    Mr. LEWIS OF GEORGIA. Well, let me come back in another 
way. When you see hundreds and thousands of Americans losing 
their jobs, people being laid off at Home Depot and other 
places, more than 7,500 people showing up for 400 jobs at a 
Wal-Mart, do you think we are sliding into a recession? Is it 
here?
    Mr. NUSSLE. No, I don't believe----
    Mr. LEWIS OF GEORGIA. Well, you disagree with the leading 
economists?
    Mr. NUSSLE. Those who are suggesting that we are sliding 
into a recession, I would--I would respectfully disagree with, 
yes. But I also do think that what you have done in a 
bipartisan way to give the economy a shot in the arm is good. 
Even if we are not in a recession, which, you know, you always 
look back at and decide, it is a prospective kind of decision 
or analysis. Even if we are not or we are, however you want to 
approach it, regardless of that argument, I think what has 
happened is the right thing to do at this time, to give a shot 
in the arm for the economy.
    Mr. LEWIS OF GEORGIA. Thank you, Mr. Director. Thank you, 
Mr. Chairman.
    Chairman RANGEL. How many shots do you think we might need 
for this nonexisting recession? We keep giving shots until it 
doesn't happen or it reverses if it is happening?
    Mr. NUSSLE. Well, I was possibly inappropriately 
freelancing on the trade question for Ambassador Schwab. 
Secretary Paulson is the one who makes the determination on 
taxes for the Administration. So, I mean, again, my opinion is 
that this is a good shot in the arm at this time. The leading 
economists tell us that there may be as much as six-tenths of 1 
percent growth in GDP as a result of what you have done. I 
think you should be proud of it. I think we should let that 
occur and see how that works.
    I think, longer term, we still have this challenge, though, 
of the skittishness of the marketplace that is concerned about 
the long-term tax liability. That is the reason why the 
Administration continues to promote, and I believe the 
President will today, the 2001 and 2003 extension.
    Chairman RANGEL. Why did the President not make it 
permanent in the first place? Why did he request that it 
expire?
    Mr. NUSSLE. Mr. Chairman, you and I both know that he did 
not request that it expire. That that is a rule that comes from 
the Senate to accomplish their rules. It had nothing to do with 
the President of the United States, I say respectfully. For 
that matter, nothing to do with this Committee.
    Chairman RANGEL. Let me recognize Mr. Camp.
    Mr. CAMP. Thank you very much, Mr. Chairman. I want to say, 
welcome back, Jim. It is great to see you here. Thank you for 
the great job you are doing.
    The 2001 and 2003 tax cuts included certainly lower rates, 
income rates, for families and individuals and also lower rates 
on capital gains and dividends. Can you tell me, if the tax 
cuts are allowed to expire or snap back to the level they were 
at before, which Americans will see their taxes go up?
    Mr. NUSSLE. It ends up being just about every American who 
pays taxes will see their taxes go up. It is about 116 million 
people, filers, will see about an average of about $1,800 in 
additional tax liability.
    Mr. CAMP. Moving on to--can you tell me the effect of the 
lowering of cap gains and dividends on particularly seniors as 
one group, for example?
    Mr. NUSSLE. I don't have any of that data in front of me. 
But there is no question that, as more and more people are 
looking to those kinds of investment vehicles that would 
realize gain or would receive a dividend, that certainly will 
have an impact on their retirement. There is no question about 
it.
    I don't have that distribution in front of me, though. 
There is no question that it is spread across, and particularly 
for those who are saving and investing for their retirement.
    Mr. CAMP. I might add, Treasury has estimated about 8.5 
million seniors saved an average of $1,144 on their '05 taxes 
as a result of lower rates on dividends and long-term capital 
gains. So, fairly significant.
    Also the tax foundations analyzed some IRS data and they 
have said that more than half of all taxpayers over the age of 
65 received dividend income in 2004. So, that is double the 
national average in terms of other taxpayers.
    Moving to the cost of entitlements, Federal spending for 
Social Security, Medicare and Medicaid in '06 together totaled 
about 40 percent of Federal expenditures. According to the 
Congressional Budget Office, without reform, spending on those 
programs will reach about double what it is now, about 15 
percent of GDP by 2030. Considering that revenues have 
historically been averaging about 18 percent of GDP, is the 
future level of spending on entitlements sustainable in your 
opinion?
    Mr. NUSSLE. No, it is not sustainable. That is the reason 
why--what we are trying to do, again, and I say to my very good 
friend from Michigan, we are not suggesting that the reforms 
that we put into this proposal that save resources in Medicare 
are exactly the perfect medicine. In fact, the Ranking Member, 
I think, said it even better, that we ought to reform health 
care and Medicare. However, the order of magnitude of the $34 
trillion unfunded liability in Medicare requires a downpayment. 
We have chosen about a third. We have also chosen a number that 
Congress has been able to lift before. You don't want to put on 
weight that somebody can't lift.
    Congress in 1997 was able to lift a bill that was actually 
heavier than the one that we are proposing at 208 billion 
across many different entitlements. So, the reason that we are 
picking it, I think, is because this is a reasonable request to 
start the discussion of what we need to do in entitlement 
reform.
    Mr. CAMP. I appreciate that answer. Obviously, we--there is 
a significant proposal in the President's budget. But I frankly 
would like to have seen a little more--I mean, even if we enact 
every item in the President's budget, we still end up with the 
same payment structure that we have now. So, fundamental 
Medicare reform, I think, is going to be essential as we move 
forward and millions of Baby Boomers in roughly 10 years become 
eligible for the program. We do need to address it and the 
sooner the better.
    So, I think that is one area where I think if we not only 
strengthen Medicare but also have to look at things in a new 
way. So, thank you very much for being here, and thank you, Mr. 
Chairman.
    Chairman RANGEL. You went into some detail with all this 
tax business. Do you recommend to Treasury what they should be 
asking for, or do they tell you what their tax policies are? 
Which way does that go?
    Mr. NUSSLE. Treasury makes the recommendation. We work 
together. It is a collaborative process. The President makes 
the final decision.
    Chairman RANGEL. So, making permanent the tax cuts, that is 
not your decision, that is Treasury's decision, right?
    Mr. NUSSLE. Well, it is actually the President's decision. 
We make recommendations.
    Chairman RANGEL. Supported by Secretary of the Treasury.
    Mr. NUSSLE. Yes, sir. We make recommendations to the 
President.
    Chairman RANGEL. So if I don't see any tax reform in here, 
it means that the President didn't recommend it, Treasury 
didn't recommend it and you certainly don't have the authority 
to recommend tax policy; is that correct?
    Mr. NUSSLE. That may not be correct. But the final decision 
is the President's.
    Chairman RANGEL. He didn't tell you to put it in this.
    Mr. NUSSLE. Well, there are a number of conversations that 
lead up to the decision about what happens in a budget and that 
is part of a very deliberative process as you might imagine. 
So, I am not sure I could recount all of the different 
conversations.
    Chairman RANGEL. Okay. Well, fortunately, Richard Neal is 
the next person to ask and he had extensive hearings as relates 
to tax policy. So, I would like to yield to him at this time.
    Mr. NEAL. Thank you, Mr. Chairman.
    Mr. Nussle, in December, the Administration pushed for an 
AMT patch without raising other taxes in a revenue neutral 
bill. It seems that this budget contemplates an AMT patch for 
this year with no offsetting revenue increases. Some have 
argued that because this AMT problem was unintended, it 
shouldn't be offset. However, your budget seems to count on AMT 
revenues. In fact, those AMT revenues cuts in half the cost of 
extending the Bush tax cuts.
    Does it seem inconsistent for you as budget director to say 
it shouldn't count for one purpose but then rely upon it big 
time for another purpose?
    Mr. NUSSLE. I think again the key here is--the priority, I 
should say, here is the President's 2001 and 2003 tax relief. 
That is the priority. We believe the rest of the Code, if you 
will, if reform is going to be done, can be done in a revenue 
neutral way. It is for that reason that we construct the 
revenue line the way we do.
    Mr. NEAL. Let me ask you, is it--there was some confusion 
here with Secretary Paulson last week about how you intend to 
proceed with AMT. Does your budget borrow the money for AMT for 
another year?
    Mr. NUSSLE. Borrow the money for AMT? No. The AMT comes 
from you and me and our neighbors and friends and----
    Mr. NEAL. To patch the AMT, is that your suggestion in the 
budget?
    Mr. NUSSLE. To patch it?
    Mr. NEAL. Well, are you patching it for another year?
    Mr. NUSSLE. Our view is that it should be fixed, it should 
be reformed.
    Mr. NEAL. But in this budget, are you patching it?
    Mr. NUSSLE. We accept that there will be a patch for this 
year, yes.
    Mr. NEAL. Where does that revenue come from?
    Mr. NUSSLE. Well, it comes from the American people.
    Mr. NEAL. But last year, that wasn't the case, here as we 
decided in the closing days of the Congress. We offered to pay 
for it on our side, and that was rejected by the 
Administration. It was the Administration's position to borrow 
the money.
    Mr. NUSSLE. Well, you are paying for it because my guess is 
you pay AMT, I would think.
    Mr. NEAL. But are we borrowing the money in your budget?
    Mr. NUSSLE. No. Not to pay for the AMT, no. We borrow money 
for spending, there is no question about that. Yes.
    Mr. NEAL. Let me ask you this. I think that the 
Administration seems to have a bit of difficulty grasping what 
seems to be a very basic question. But since 2001, let me just 
see if I can get you to agree to this. Since 2001, these 
temporary AMT patches have not been offset. Is that the case?
    Mr. NUSSLE. That is, I believe, the case.
    Mr. NEAL. Okay. So, that means if they have not been 
offset, that it has been accomplished with borrowed money.
    Mr. NUSSLE. No. It means that we took less money from your 
neighbors and you and me who pay AMT.
    Mr. NEAL. Okay. Let me ask you this. CBO told us in 
December that a $50 billion patch for last year would result in 
an additional $29 billion of interest. Do you agree with that?
    Mr. NUSSLE. If that is what CBO says, I don't have anything 
to quarrel with that.
    Mr. NEAL. Why are we paying interest that we just plucked 
from the taxpayer as opposed to money we had to borrow----
    Mr. NUSSLE. That assumes, though, that there is nothing 
that is being spent.
    Mr. NEAL. Mr. Nussle, would you agree with this number? 
There have been estimates that have suggested that additional 
interest expense for all the AMT patches since 2001 will be 
$106 billion through 2017.
    Mr. NUSSLE. Again, I don't know where the number comes 
from. I will----
    Mr. NEAL. CBO.
    Mr. NUSSLE. Okay, I will trust that. I don't have anything 
to quarrel with that.
    Mr. NEAL. So, we are paying interest on what?
    Mr. NUSSLE. On spending.
    Mr. NEAL. We are not paying interest on the borrowed----
    Mr. NUSSLE. Well, what happened to spending last year at 
that same time that an AMT patch was done and left people with 
more money in their pocket? Spending went up. That is what you 
borrowed money for--to pay for this spending.
    Mr. NEAL. Mr. Nussle, I am just trying to get you to say 
what every individual who is involved with AMT, regardless of 
whether or not it is congressional representation or 
Administration representation, that we are being asked to 
borrow the money.
    Mr. NUSSLE. I disagree with that. I mean, if you ask a 
taxpayer sitting at their tax preparer today----
    Mr. NEAL. I am asking the director of the budget office. 
Where are we going to get the money to do it?
    Mr. NUSSLE. When I pay my AMT, I don't worry about what the 
government is borrowing. I have to worry about where I am going 
to come up with the money to pay for it.
    Mr. NEAL. You might not worry about it. But certainly to 
get the balanced budget that you proposed to get through the 
fiscal year----
    Mr. NUSSLE. No, no, no. You are asking me if you borrow 
money to pay for taxes. What I am saying is, the only people 
who pay taxes are people, not government. Government doesn't 
pay taxes.
    Mr. NEAL. Last year at the conclusion of the congressional 
session, where did the $50 billion come from to patch AMT?
    Mr. NUSSLE. It was money that was left in the pockets of 
the American people. We spent more money here in Washington, 
that we borrowed money in order to pay for.
    I mean, this is a fundamental----
    Mr. NEAL. Mr. Chairman----
    Mr. NUSSLE. It depends on who you think this money belongs 
to.
    Chairman RANGEL. You have to have some respect for 
government even if it is the Executive Branch.
    Let's see, where are we now, here. Mr. Johnson from Texas, 
you are recognized for purposes of----
    Mr. JOHNSON. Thank you, Mr. Chairman. I had to borrow a lot 
of money last year to borrow taxes. The only problem is there 
are no taxes in Texas.
    As you know, Chairman McNulty and I wrote to you asking for 
sufficient funding to address the disability claims backlog 
crisis and to provide sufficient staffing needed to address 
increasing workloads in the Social Security Administration. I 
thank you for agreeing with us and providing enough funds in 
the budget for the agency to reducing the hearing backlog by 
70,000 cases. That is only 20 percent.
    They process over 200,000 more retirement and survivor 
claims and handle 4,800,000 number of calls compared to fiscal 
year 2000. Waiting time and claims processing times should 
drop. More program integrity work will be processed.
    In his budget message, the commissioner of Social Security 
says the agency is at a crossroads, facing an avalanche of 
retirement and disability claims, while they must address large 
backlogs. Without sustained adequate funding, the commissioner 
reports the Social Security service crisis will worsen, at the 
same time the aging population is increasingly counting on 
Social Security programs.
    Do you agree with the commissioner and how can we work 
together to ensure that SSA can handle its growing workload in 
the coming years?
    Mr. NUSSLE. I do and I commend you for the things that you 
have done in the areas that you have led as well. The President 
also agrees that this backlog is unacceptable and we have--in 
the budget, we have increased on this backlog, reduction plan, 
the budget 6 percent, a little bit over 6 percent in order to 
accomplish that. We would continue to work with this Committee 
and others to continue to reduce that backlog.
    Mr. JOHNSON. I thank you. We are trying to hire some judges 
to help solve some of that problem. It is not easy, as you 
know.
    I don't have any further question, Mr. Chairman. I yield 
back the balance of my time.
    Chairman RANGEL. Thank you, Mr. Johnson.
    I would like to recognize Mr. Pomeroy.
    Mr. POMEROY. Thank you, Mr. Chairman.
    Mr. Director, good to see you. Congratulations on the 
position the President has appointed you to hold.
    I have, in thinking back on our go-arounds in years past 
when you were a Member of Ways and Means and a Member of Budget 
and Chairman of Budget, wondered whether we shouldn't reprise 
one of our go-arounds one more time for old time's sake on 
general budget policy.
    But I actually think I will not do that. I want to point 
out a short-term, pretty glaring energy issue and ask what the 
rationale for the Administration's position was. Then I want to 
talk to you about an issue that maybe is ripe for constructive 
work in the year ahead. You don't have a lot of time in your 
position. I know you would like to make a constructive mark. 
Let's explore the waterfront and see where we can work together 
and leave something that might be a constructive achievement in 
a bipartisan context in this last year of the Administration.
    Let me begin with the urgent issue, LIHEAP, the fuel 
assistance, the heating assistance for seniors. It is five 
degrees in Bismark, North Dakota, today. That is a pretty warm 
one compared to what we have been experiencing lately. We are 
having a fairly severe winter, as is true of much of the 
country.
    Although the price of heating homes is up dramatically and 
I am just happy that the folks in our region are not quite as 
dependent on fuel oil as they are in other areas, still even 
natural gas is up significantly and we--the proposal on fuel 
assistance would cut $570 million. It would be a 22 percent 
cut. Essentially, the ways we can figure to do it, in terms of 
running the program, is lop a million people off of fuel 
assistance or cut the benefits people receive by 22 percent. 
All of that flies in the face of a reality of higher and higher 
heating costs.
    So, what was the rationale on the LIHEAP cut?
    Mr. NUSSLE. LIHEAP is an annual challenge, as you and I 
both know, because our states qualify for LIHEAP. First of all, 
this is the LIHEAP budget for 2009. The year that we are in 
right now obviously has already been settled. But to some 
extent, this is--I guess a couple of things.
    First of all, the President asked for more resources than 
he did the year before. It is difficult to outbid Congress. We 
have learned, I think, from an Administration standpoint, to 
outbid Congress when it comes to this important program. It is 
based, I think, on a more situational basis no different than 
often some other emergency funding is often done. That is the 
way Congress often treats it.
    So, you know, to look into the future and to know exactly 
what that is going to be like is difficult. Also recognizing 
that Congress has chosen to outbid the President in his 
increases has also been something that, at least within a tight 
budget, we weren't able to sustain.
    So, we increased the amount that we are requesting. But we 
also know that Congress may choose to not fund other areas and 
to fund this in final analysis.
    Mr. POMEROY. If I hear you correctly, I hear you say this 
would not cause quite the concern of spending in other areas if 
Congress ups the--if Congress even flatlines the program as 
opposed to a 22 percent cut, maybe it wouldn't go down all that 
badly at the White House?
    Mr. NUSSLE. Well, this is the annual challenge that you and 
I know well, and that is the President sets overall parameters 
for spending, certainly makes some judgment calls as to what 
the pluses and minuses and what the choices are. But recognizes 
that Congress through the appropriations process is the one 
that makes that determination.
    He often, as he says, holds the top line. Congress makes 
the determination of where those pluses and minuses should be.
    Mr. POMEROY. An area where I believe the Administration 
ought to provide more leadership on top line, in light of one 
of its stated top five priorities, renewable energy, would be 
in support on the wind energy development. We are coming a long 
way, but we still as a percentage of power captured from this 
renewable fuel rank far below European countries.
    The economic report to the President says that wind power 
is cost competitive provided the production tax credit is in 
place. That is found on page 175 of that document.
    Is the Administration supportive of the production tax 
credit in support of wind energy?
    Mr. NUSSLE. All I was checking on was to see what 
statements have been made. I am not familiar with what has been 
said, and I am still not familiar based on what I was just 
told. So, can I get back to you on that? I believe the 
Administration has been supportive in the past. Going forward, 
I am not sure that I can answer that for you at this point.
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    Mr. POMEROY. There is not provision for extending the wind 
production tax credit, which expires at the end of '08. We are 
going to see development of this renewable fuel begin to 
curtail quite dramatically in the months immediately ahead if 
we don't extend. This is an area maybe we could work together 
to try and support extension of the wind production tax credit.
    Thank you, Mr. Chairman. I yield back.
    Chairman RANGEL. Thank you. The Chair recognizes Mr. 
Tiberi.
    Mr. TIBERI. Thank you, Mr. Chairman. Thank you, Director, 
for being here today.
    I don't know if you know this off the top of your head, but 
back to the Federal receipts since the 2001 and 2003 tax cuts 
were enacted, so I guess beginning in 2004, have Federal 
revenues gone up or down?
    Mr. NUSSLE. They have gone up, dramatically.
    Mr. TIBERI. Every year?
    Mr. NUSSLE. There were 3 years actually. Beginning in 2001, 
I believe, that it was the first time in history there was less 
revenue for 3 years since the twenties, as a result of the 
shock that occurred in '01, obviously.
    But after that, I believe every year there have been 
increases. As I stated in my opening statement, '05 was 14.5 
percent, I believe, 11.8 percent in '06 and then 6.7 percent in 
just this last year, as examples.
    Mr. TIBERI. Sorry I missed your opening statement. I was in 
the Budget Committee.
    Mr. NUSSLE. It was scintillating, so I am sorry you missed 
it, too.
    Mr. TIBERI. It is interesting, because you talk about your 
neighbor, and we all have neighbors, obviously, back home. It 
is interesting because there are views of some people, and it 
is shocking when you correct them, that Federal revenues have 
actually gone up, because there is this belief that Federal 
revenues have actually gone down.
    In terms of those tax cuts in 2001 and 2003, if those tax 
cuts--if those tax cuts are not extended, if they are allowed 
to expire, do you know how many people today, how many 
Americans or how many American households who under those tax 
cuts do not pay taxes will have to again begin paying taxes 
after those tax cuts expire in 2010?
    Mr. NUSSLE. I believe there are 116 million people would 
pay about $1,800 more on average if they are not extended.
    Mr. TIBERI. Generally speaking, are those people, people 
with income of less than $100,000, or are they the richest 1 
percent of Americans?
    Mr. NUSSLE. Well, just by your statement, I mean, obviously 
this is the bulk of America that we are talking about, the so-
called middle class, if you will. So, obviously the bulk of it 
are people who are not making money that could be defined as 
rich, I would suggest.
    Mr. TIBERI. I have heard thousands of times that the tax 
cuts went to the wealthiest 1 percent. Do you know what 
happened beginning in 2004? The wealthiest 1 percent paid X 
number of dollars or a percentage, let's go with percentage, 
they paid a certain percentage of the total income tax picture 
before those tax cuts went into effect and after. Did it go 
down in terms of what they paid in terms of the overall 
percentage of income taxes to the Federal Government or did it 
go up?
    Mr. NUSSLE. Interestingly, the top 1 percent actually paid 
slightly more as a percentage. Right now, the percentages stand 
that the top 1 percent pays nearly 39 percent of all taxes and 
the top 5 percent pays nearly 59 percent of all taxes. But 
those--you are correct, there was actually more money that came 
from those--from those percentages, not less.
    Mr. TIBERI. The number of overall taxpayers, once the '01 
and '03 tax cuts went into effect, correct me if I am wrong, 
the number of taxpayers paying taxes to the Federal Government 
went down?
    Mr. NUSSLE. That is correct.
    Mr. TIBERI. Do you know by how many?
    Mr. NUSSLE. I could get that for you. I don't have it right 
off the cuff.
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    Mr. TIBERI. Okay. Do you know how many taxpayers would, if 
we do not extend the child tax credit, would begin paying the 
child tax credit or would begin paying taxes again? Let me flip 
that around. How many moms or dads would not benefit or lose 
the benefit of the child tax credit that they receive today if 
we allow that to expire?
    Mr. NUSSLE. Well, all of them that are currently eligible 
for it.
    Mr. TIBERI. Do you know what that number would be?
    Mr. NUSSLE. I don't right offhand.
    Mr. TIBERI. That is something that we could get a hold of?
    Mr. NUSSLE. I will check on that as well.
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    Mr. TIBERI. Okay, thank you, Mr. Chairman.
    Chairman RANGEL. Thank you.
    The chair recognizes Ms. Tubbs Jones from Ohio.
    Ms. TUBBS JONES. Mr. Chairman, thank you very much. Mr. 
Nussle, it is always nice to see you.
    I want to focus in for a moment around health care. Under 
the President's proposal, it looks like the only thing that is 
saved for tax deduction are these health savings accounts. Is 
that correct?
    Mr. NUSSLE. We also put into the plan again this year the 
President's standard deduction for health insurance as well. 
So, yes, you will see those provisions in the budget.
    Ms. TUBBS JONES. A standard deduction. What is the standard 
deduction under this new budget?
    Mr. NUSSLE. The standard deduction is $15,000 for families 
and it is a shift from the employer to the employee so that the 
employee can go out into the marketplace. Again, the exclusion 
is up to $15,000.
    Ms. TUBBS JONES. A shift from the employer to the employee 
meaning that employer-provided health insurance becomes taxable 
income to the employee?
    Mr. NUSSLE. What it does is it also gives the employee--and 
many of these are self-employed, many of these are people 
working in small businesses where the employer doesn't afford 
health insurance at this point in time, can go out into the 
marketplace in addition to a number of other reforms, and begin 
to be able to purchase that and get the benefit as opposed to 
the employer getting the benefit.
    Ms. TUBBS JONES. But stay with me, Mr. Nussle. Employer-
provided health insurance becomes taxable income to the 
employee, right?
    Mr. NUSSLE. Yes.
    Ms. TUBBS JONES. I want to be clear. Then the budget 
eliminates the self-employed deduction for health insurance 
expenses?
    Mr. NUSSLE. Yes.
    Ms. TUBBS JONES. It eliminates the tax deduction for people 
who have spent more than 7.5 percent of their income on medical 
expenses, except for people 65 and older.
    Mr. NUSSLE. Yes.
    Ms. TUBBS JONES. It eliminates medical flexible spending 
accounts? Well, presume I'm correct. I wouldn't try and throw 
you an incorrect statement.
    Mr. NUSSLE. Okay.
    Ms. TUBBS JONES. The import of what I am saying to you, or 
I am asking you, Mr. Nussle, is what is the President's 
rationale for eliminating all of these deductions at a time 
when health care costs are so expensive and fewer and fewer 
people are able to afford health care?
    Mr. NUSSLE. Again, it is designed to give the empowerment 
to the individual as opposed to the tax benefit to the 
corporation or the company. Or to the business. So, that the 
person actually has incentives in this process and not the 
employer.
    The employer currently has an unlimited amount of tax 
benefit. We would give it to the employee so that they could go 
out. As a result, it would allow somewhere around 8 million 
people who are currently uninsured to be able to go out and 
purchase insurance under this kind of a plan.
    Ms. TUBBS JONES. Excepting that the people who are employed 
and receive health care from their employer probably are able 
to get a better deal because they are part of a group than they 
are out there on their own. Also, it is very difficult to 
navigate the medical insurance world when you don't know 
anything about that.
    Mr. NUSSLE. That is why we expand risk pools. That is why 
we allow for purchasing insurance across state lines. That is 
why we also support association health plans to allow for that, 
as you say, growing risk pool to give them more purchasing 
power.
    Ms. TUBBS JONES. You give them more purchasing power. But 
if they don't know what they are purchasing, I mean, it is kind 
of like this whole foreclosure piece where the people in 
America entered into agreements with banking institutions and 
predatory lenders and now they are stuck because they didn't 
realize that there was a balloon payment in the process. You 
put people into buying health insurance and they would have the 
same problem. They don't know anything about buying any health 
insurance. Companies employed people to describe the best plan 
for their employees. How do you help people out if they are on 
their own?
    My last question, Mr. Chairman.
    Mr. NUSSLE. Well, in a competitive marketplace, people are 
going to compete for that kind of dollar. Especially if you are 
competing over state lines, it is up to the companies to try 
and attract them. One of the attractive qualities I certainly 
would look for as a consumer is if it was simple, easy to 
understand, easy to make claims. Those are things that I 
certainly would look at as a consumer. I think most people 
would. Right now, they don't have that incentive, as a result 
of it being kind of a take-it-or-leave-it approach that your 
employer----
    Ms. TUBBS JONES. But you understood that when we did the 
prescription drug benefit for seniors, the presumption was that 
seniors would know how to navigate the waters and they really 
didn't. So, why do you think that everyday people who know 
nothing about health care or purchasing health care would know 
how to navigate those waters.
    Mr. NUSSLE. Well, I reject the fact that everyday people, 
so called, could not do that. That again, that companies would 
not appeal to that, to the recognition that they have got to 
make it simpler.
    But this doesn't suggest that any company is going to have 
to get rid of their health insurance, employers can still get 
it through their employer. It just gives, as I say, about 8 
million people another opportunity of a way to purchase health 
insurance, especially when they are in a small business that 
doesn't often afford health insurance.
    Ms. TUBBS JONES. But we--Mr. Chairman, I am done.
    Mr. Nussle, it is nice to see you but I think you all 
should go back to the table and rethink what you are doing 
around taxing for health care for people of America.
    Thank you, Mr. Chairman.
    Chairman RANGEL. Mr. Nunes.
    Mr. NUNES. Thank you, Mr. Chairman. I will be very brief 
here.
    Mr. Nussle, welcome back to the Committee. I am going to 
submit a question in writing for you, but I am very concerned 
about a local California issue involving a $3.3 million 
provision that is in your budget this year and it is put in 
there by the Bureau of Reclamation. I am hoping just to raise 
the awareness of this. You and I have talked about it before. 
But I am very concerned about this turning into a $500 million, 
possibly $1 billion unauthorized earmark toward the end of this 
Congress. So, I will submit it for the record. With that, Mr. 
Chairman, I will yield back.
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    [Answers to Questions for the Record posed by Mr. Nunes 
follows:]
    Chairman RANGEL. Thank you. Mr. Thompson.
    Mr. THOMPSON. Thank you, Mr. Chairman. Thank you, Mr. 
Nussle, for being here.
    I would like to ask you a question regarding the 
credibility of this document. This document represents not only 
the priorities of the President but the priorities and the 
future for the American people. It seems to me that it should 
be a credible document.
    When I read in here that the amount of money budgeted for 
the war in Afghanistan and Iraq is $70 billion and then 2 days 
later the Secretary of Defense comes out and says that we are 
going to need at least $170 billion, he didn't just realize 
this 2 days after the budget was put together.
    Was this an oversight or was this just purposely left out 
to influence public perception of this document?
    Mr. NUSSLE. If that is the characterization that you read, 
I would suggest that is a mischaracterization of his statement 
at that time. I am not suggesting you are mischaracterizing it, 
but I think it is a mischaracterization----
    Mr. THOMPSON. So, we only need 70 billion for the war this 
year?
    Mr. NUSSLE. No. Actually, no, that is not what we said. I 
mean, first of all, there is $108 billion remaining for this 
year that Congress has not yet appropriated for the current 
obligations that have very specifically been placed in the 
budget that was done a year ago and Congress has still not 
responded. Part of our concern is, where is that money?
    I mean, before we ask for more----
    Mr. THOMPSON. But that has nothing to do with this 
particular budget document.
    Mr. NUSSLE. Oh, sure it does. We actually do think it does, 
because we were specifically--and I was one of the people, 
haranguing the Administration, put it into the budget, make it 
specific, give us your amount so that we can consider it.
    Well, it was put into the budget, it was very specific, and 
Congress has yet to consider it.
    Mr. THOMPSON. But if you need 170 and you don't have 
anything, irrespective of why you don't have it, why would you 
just put 70?
    Mr. NUSSLE. Secretary Gates did not say that he knew that 
it was going to be $170 billion as a final request. He didn't 
know that.
    He said that if you take it arithmetically and you look at 
it, you could say 170. But he immediately said, that is not an 
accurate figure and I know that today, because I don't even 
know how much----
    Mr. THOMPSON. What is the accurate figure, Mr. Nussle?
    Mr. NUSSLE. We don't know that today. But we do know there 
is $108 billion that is needed for this year for men and women 
who are currently in the field. We certainly are anxious to 
hear what Congress is going to do about that.
    Mr. THOMPSON. Mr. Nussle, does this budget assume that 
there will be no alternative minimum tax patch starting in 
2009?
    Mr. NUSSLE. Yes.
    Mr. THOMPSON. Does this budget assume that none of the 
renewable energy incentives will be extended?
    Mr. NUSSLE. It doesn't assume that, but it--it assumes that 
Congress will address that at that time.
    Mr. THOMPSON. But the budget itself does not take that into 
consideration?
    Mr. NUSSLE. No.
    Mr. THOMPSON. Does this budget assume that Medicare 
reimbursements to physicians will be cut by 10 percent in July 
and 5 percent a year thereafter?
    Mr. NUSSLE. Yes.
    Mr. THOMPSON. How is it at all----
    Mr. NUSSLE. Which is current law, which is what Congress 
also assumes at this point.
    Mr. THOMPSON. So, how can you project then that this budget 
will be balanced by 2012?
    Mr. NUSSLE. Well, because that is--that is what we project. 
It will be interesting to see----
    Mr. THOMPSON. So, you are counting on the--so you are 
actually counting on the physicians, doing away with these--or 
in terms that were used when we were in the minority, 
increasing the taxes on people who chose renewable energy and 
increasing the taxes on people who fall within the alternative 
minimum tax catchment area? You are going to increase their 
taxes, cut medical reimbursements, doctors' reimbursement rates 
in order to reach that--that balance point by 2012?
    Mr. NUSSLE. In addition to that, we believe that there is 
an unfunded liability in Medicare that needs to be addressed 
and we have given you the order of magnitude for addressing it. 
If those are not the provisions Congress chooses, then we look 
forward to hearing what Congress is going to do to address 
that.
    Mr. THOMPSON. Mr. Chairman, I would hope that we would be 
able to bring this document to a vote. I think we ought to vote 
and find out where the votes are on this Committee and on the 
floor to see if Members of our Committee and Members of the 
House believe this to be both a credible document and believe 
that this Congress would allow physicians to be cut to this 
extreme, losing health care throughout all the districts across 
this country, that this Congress would believe that we would 
increase taxes on the alternative minimum tax folks and people 
who chose alternative energy at a time when there is probably 
not a more important choice to make.
    I yield back the balance of my time.
    Chairman RANGEL. Thank you.
    The Chair recognizes Ms. Berkley.
    Ms. BERKLEY. Thank you very much, Mr. Chairman. Welcome, 
Mr. Nussle.
    I represent Las Vegas, Nevada, which is the fastest growing 
community in the United States. Until recently, we had probably 
just about the strongest economy in the country. We kind of 
prided ourselves on being recession proof.
    But because I have got the fastest growing school age 
population, we build a school a month in order to keep up with 
the growth. I have the fastest growing senior population, 
fastest growing veterans population, fastest growing immigrant 
population in the United States.
    I am very concerned about what is happening in my district. 
If it is happening in my district, I can only imagine what is 
happening across this country. Let me share with you some of 
the problems that we are having in Nevada.
    We have got the highest mortgage foreclosure rate in the 
country. One out of every 152 homes is currently in 
foreclosure. We have a very serious housing shortage, 
affordable housing shortage and we have a lot of suffering 
going on as people are losing their homes.
    Our unemployment rate, rather than being below the national 
average, is a full percentage point above the national average, 
which is creating very, very serious problems as you can 
imagine.
    I don't need leading economic indicators to tell me that 
something is wrong. It is just having a good feel for your 
district, knowing in the 9 years I have gone home every weekend 
and never being in a plane that wasn't overfilled, that now the 
planes that I am flying back home are half empty.
    We had a fire at the Monte Carlo and they were able to 
relocate every single one of the guests at other hotels. 
Heretofore, we had 100 percent occupancy. The reason for that 
is because the economy is very weak and people are very, very 
nervous.
    So, knowing these things, and I am setting this up so we 
can talk about the cuts in the President's budget that are 
going to have a direct impact on the people that I represent.
    There is going to be--in this budget, Nevada will lose $2 
million in JAG funds, which means 34 fewer police officers are 
going to be on the streets. That is going to be a very 
dangerous thing when you have two million people in the 
metropolitan area of Las Vegas and 40 million visitors a year. 
Even if it goes down, we still need to have a full contingent 
of police. This is going to cut officers.
    800,000 cut in assistance to firefighter grants. We just 
had a major fire at a local hotel/casino. We need to have those 
fire grants.
    We have a $3.8 million cut in a community development block 
grant funding. These funds, as you know, are used for economic 
development, job creation, affordable housing, for citizens in 
need. If I have a crisis now, what are we going to do with $3.8 
million less.
    1.5 million in dislocated worker program funds, meaning 482 
additional Nevadans won't receive job training at a time that 
our unemployment rate is higher than the national average. That 
causes me a great deal of concern.
    A $630 million cut for manufacturing extension partnership, 
which is going to cost 312 new jobs.
    A $677,000 cut in teacher quality state grants. This money 
is used to hire and recruit new teachers. We always have a 
shortage. We hire 2,000 new teachers a year to keep up with the 
growth in Nevada and we always have a shortage. We need that 
money to hire and recruit and find teachers that are willing to 
come to Las Vegas to teach our kids.
    I am very concerned about the $2 million cut just in Nevada 
alone in the 21st century Learning Centers. There isn't a 
community in the United States that needs after-school programs 
more than mine, especially with most--a large percentage of 
divorced homes, single parents raising children. They need to 
have these children in a safe environment after school. I am 
going to have 4,400 kids that are going to be thrown off this 
program that currently exists. What are we going to do with 
them?
    You know the other cuts in here, but there are a couple of 
things that I want to talk about and these are the questions. 
So, I have set up the problem I am having in my district and I 
would like to get some help from you.
    So, if we are going to cut nearly $187 million in Medicare 
over the next 5 years, let me tell you what is going on in my 
district. I have a doctor shortage, huge, and I am getting 
telephone calls from doctors that say to me, not in a 
threatening way, but just are telling me the facts on the 
ground, that they will continue to take care of their Medicare 
patients, but they are not going to be able to hire--to see any 
more Medicare patients. Unless I am going to go back to medical 
school so I learn how to take care of my senior citizens, 
having the fastest growing senior population in the United 
States, who is going to take care of these senior citizens? Our 
Medicaid situation is worse than our Medicare situation.
    Let me hit one other thing for you to answer. So, I would 
like to know what I am going to do, short of going back to 
medical school to help my constituents, my senior citizens.
    Now, let me ask you something else. I know there has been a 
lot of talk about the Social Security, the disability benefits 
and we are putting some money in. But let me tell you what is 
going on my district. I have got senior citizens standing in 
line 2 or 3 hours at the card center. One woman fainted the 
other day, because there is not enough staff. So, you gave us 
an extra card center, the Social Security administrator gave us 
an extra card center, and no additional staff. So, all it does 
is increase the lines at more locations.
    What worries me, I know that there--and this came out of 
your office, where it talks about the--all right, with the 
disability claims, we are going to see the amount of the 
backlog down. But it also says here on the bottom line, other 
work service in support of public annual growth of backlog, it 
goes from 3,300 to 4,800 from 2008 to 2009.
    I am very much a part of that crisis. Unless I am going to 
go back home and start standing in line and helping my seniors 
talk to their Social Security people, I have got another major 
crisis. So, how does this budget help the people that I 
represent? What are you going to do to help me to help the 
people I represent?
    Chairman RANGEL. Mr. Doggett is recognized for 5 minutes.
    Mr. DOGGETT. Thank you very much, Mr. Chairman.
    Mr. Nussle, on the issue of the renewable energy package, 
tax incentives, the extenders for wind and solar, I know you 
are familiar with the statement of Administration policy that 
was issued last year that the Administration would oppose these 
if the pay-fors were in there with reference to fossil fuels.
    My question to you, are there any revenue offsets that the 
Administration would support in order to help us get a 
renewable energy tax package approved? Or is it the view of the 
Administration that we must borrow money to pay for those?
    Mr. NUSSLE. At this point in time, I would have to defer to 
Treasury to answer that for you. I can't answer that for you 
today. I'm sorry.
    Mr. DOGGETT. During your testimony last week to our Budget 
Committee, in defending the Administration decision to only 
include for next year for funding the war in Iraq, what I think 
is about 6 months' worth of expenditures there, $70 billion, 
you responded to Mr. Ryan at the Budget Committee, quote, the 
next Commander-in-Chief who may, in fact, make a different 
determination about the strategy and we didn't want to tie 
their hands. I had not realized that was the position of the 
Bush Administration, but I certainly applaud it if it is.
    Are you saying that the policy of the Administration is to 
exercise care in all of its choices to not tie or limit the 
alternatives or choices that the next Commander-in-Chief will 
have in less than a year with reference to the war in Iraq?
    Mr. NUSSLE. I think the challenge here, as you might 
imagine, I would say to my friend from Texas, it is a matter of 
specificity. How specific about the strategy a year from now 
can we be when we know we will have a new Commander-in-Chief. 
We knew what we were able to do this year and that is why the 
budget made it very specific last year. We don't know what that 
Commander-in-Chief will do.
    The bridge fund of $70 billion, as you say, 6 months. Let's 
just take that as a point of reference. Will get you from 
November--excuse me, the fiscal year into the next year, giving 
you and the next Commander-in-Chief the opportunity to make 
decisions. Hopefully, taking into consideration the commanders 
and other things that are going on. Hopefully the good news 
will continue.
    But it is a budget statement. The President hasn't said 
that, I would just say to my friend. But that is a budget 
statement about it.
    Mr. DOGGETT. I understand the math. Might disagree with 
you--I do indeed disagree with you about the choices that have 
been made. But it is a principle of this Administration to not 
tie the hands of the next Commander-in-Chief and give that 
Commander-in-Chief the alternative policies if he or she so 
chooses to exercises alternatives different from this 
Administration.
    Mr. NUSSLE. Not only is that the case within this budget, 
but we couldn't tie the hands, thankfully, of the next 
Commander-in-Chief. The Commander-in-Chief is in charge, right?
    Mr. DOGGETT. Thankfully. Let me ask you about a different 
area, and that is President Bush's executive order that was 
issued back in January 2007 that required that any significant 
guidance documents that came out of an administrative agency 
needed to be reviewed in your office, specifically in the 
Office of Information and Regulatory Affairs.
    Was the August 17th letter concerning the children's health 
insurance program reviewed by your office pursuant to that 
executive order?
    Mr. NUSSLE. I don't know the answer to that. I wasn't the 
director at that time. I could find out for you, Lloyd.
    [The information follows:]

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    Mr. DOGGETT. Okay.
    Mr. NUSSLE. But I don't--right offhand, I don't know.
    Mr. DOGGETT. If you would. If it was not reviewed by your 
office, and maybe one of your staff members knows, to advise 
why that choice was made.
    The second one that I wanted to ask about was the decision 
by the Center of Medicare and Medicaid Services, CMS, to 
eliminate the local nexus rule for employer-sponsored, private 
fee-for-service, which has led, we believe, to about 300,000 
more people going into the more costly Medicare Advantage 
programs. Do you know if that was reviewed in that office?
    Mr. NUSSLE. Do you--and I don't know what date was that?
    Mr. DOGGETT. About a year ago.
    Mr. NUSSLE. I don't know. I would, again, I wasn't 
director. I could check.
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    Mr. DOGGETT. If you could just have your office get back as 
to whether the review occurred and, if not, why the decision 
was made not to review. Generally, though, the goal of your 
office is to try to review every guidance that has significant 
fiscal impact, whether it is to reduce the flow of government 
expenditures or increase the flow of government expenditures?
    Mr. NUSSLE. Yes, sir. Again, my guess is that they were, 
because that is the function. But I just have no personal 
knowledge about that. I couldn't tell you more about it at this 
point.
    Mr. DOGGETT. Your office performs a number of performance 
audits on administrative spending programs. There is a section 
of the budget that goes back to the 'nineties on tax 
expenditure programs, but I don't see any performance analysis 
of those in the budget. You give us about a page or two.
    Have you or has the Treasury Department considered doing 
performance audits on any of these tax subsidy programs?
    Mr. NUSSLE. I am told it has been considered but, no, it 
hasn't----
    Mr. DOGGETT. But nothing has been done?
    Mr. NUSSLE. No. Is that a recommendation? You are 
suggesting that is something we ought to think about?
    Mr. DOGGETT. Absolutely.
    Mr. NUSSLE. Okay.
    Mr. DOGGETT. Thank you.
    Chairman RANGEL. The chair recognizes Mr. McDermott.
    Mr. MCDERMOTT. Thank you, Mr. Chairman.
    Mr. Nussle, I want to talk a bit of philosophy with you. If 
you go out to buy a car, you do a little shopping around, you 
go to one agency and then you go to another agency and you try 
and figure out what is the best deal for yourself. I hear you 
talking about the entitlement programs here and there is one 
particular one that troubles me. That is the decision by the 
Congress and approved by the President not to have competitive 
bidding on the pharmaceutical costs in Medicare.
    Can you explain to me why you would want other pay top 
dollar to the pharmaceutical companies when the Veterans 
Administration can negotiate prices and get anywhere from 20 to 
40 percent reductions? I would like to understand why buying 
for 40 or 45 million people in the Medicare Program, you 
wouldn't want to use whatever leverage you could to get the 
lowest possible price. There must be something about the free 
enterprise system to hear you explain it.
    Mr. NUSSLE. My bet is that you understand it very well, but 
having said that, I think the difference here is that when I go 
out to buy a car, using your analogy, I don't bring along my 
congressman and I don't bring along, you know, a well-meaning 
professional bureaucrat in Washington to do the negotiating for 
me, or to negotiate the price of every car for every consumer 
everywhere in the country and make that as an arbitrary 
decision. I want to go do it myself, or I am willing to listen 
to an expert who has some skin in the game, so to speak.
    Mr. MCDERMOTT. So, your basic feeling then is that a price 
of aspirin or Coumadin for thinning the blood after a heart 
attack or whatever, that should be different priced all across 
the country, no matter where you--wherever you live, you ought 
to be able to negotiate the best price you can in Sioux City, 
Iowa, as in Seattle, Washington, or Orlando, Florida? There 
shouldn't be a universal price that the government could get, 
the lowest price for every senior citizen who is using 
Coumadin?
    Mr. NUSSLE. Well, and that is why the government in this 
instance has chosen pharmacy benefit managers to do that and 
has saved about $60-some billion from the original projection 
of what it would cost for Part D as a result of competition 
being part of the overall plan.
    Mr. MCDERMOTT. Your position then is that we are getting a 
better deal in Medicare than they are in the Veterans 
Administration? Is that it?
    Mr. NUSSLE. I am not suggesting that.
    Mr. MCDERMOTT. Where the Veterans Administration negotiates 
for 5 million veterans one price?
    Mr. NUSSLE. Right, which is a much smaller population to 
negotiate for. It would be similar if one pharmacy benefit 
manager would----
    Mr. MCDERMOTT. But the veterans mouths are just like the 
mouths of old people. They put the pills in their mouth. What 
is the difference between old people and veterans?
    Mr. NUSSLE. Well, it is not--I am sure there are veterans 
who are also old. So, there may not be any difference.
    Mr. MCDERMOTT. Ah, so they can get them cheaper one place 
than they can to the other.
    Mr. NUSSLE. However the Veterans Administration also limits 
the drugs that they can get.
    Mr. MCDERMOTT. Oh, I see. So, you--because the Medicare 
Program doesn't provide everything----
    Mr. NUSSLE. I'm sorry----
    Mr. MCDERMOTT. Well, I mean, it doesn't make any sense. For 
those drugs that are common between the VA and the Veterans 
Administration, why shouldn't they have the same low price? Why 
should--you are saying that the benefit managers are getting 
that same low price; is that it?
    Mr. NUSSLE. I am suggesting that having that kind of 
competition in the marketplace is good, not only on the 
receiving end of the drug, but also on the manufacturing, on 
the research and development that goes into those drugs in the 
first place, the whole scheme of things is benefited by having 
that kind of market out there.
    No different than the automobile example. If one price was 
set for one automobile, eventually you would decide the color 
for me, how many----
    Mr. MCDERMOTT. You know what the difference is?
    Mr. NUSSLE [continuing]. Doors are on the car----
    Mr. MCDERMOTT. A car you don't need to buy. Coumadin, you 
may need to buy to stay alive. That is why it is different. You 
cannot treat as a commodity health care or medicine or devices 
in the medical system. People need it and don't have a choice. 
You don't have to buy another car, you don't have to buy 
another refrigerator. So, you can spend all--months looking for 
the best deal.
    When you need your Coumadin, you got to go to the drug 
store or something and get it. You have no time, you have no 
ability, you have no leverage. You need it now. You can't pull 
the pharmacist around and jerk him around and say, well, I will 
come back tomorrow and see if you have a better price. You have 
no leverage at all.
    You are saying that seniors shouldn't count on the Federal 
Government for their leverage. I appreciate your explaining 
that to us. Thank you.
    Mr. STARK. [Presiding] Would the gentleman from Texas like 
to inquire?
    Mr. BRADY. Mr. Chairman, thank you. Director, nice to see 
you back.
    A lot of talk these days about how to balance the budget 
and how to do it thoughtfully. One of the proposals in the 
President's budget is to establish a bipartisan, bicameral 
sunset commission, one that is--a model that has been used by 
24 states that basically goes after identifying obsolete 
agencies and programs, those that duplicate each other, those 
that have outgrown their usefulness over the years.
    The states that use it have had varying degrees of success 
depending upon their commitment, but the goal is to--I think in 
trying to control spending in Washington, we either try to go 
on a crash diet, or we ignore it completely. This is--the 
sunset commission approach is a more of a take-off-pounds 
sensibly. Both parties work together, regardless of who is in 
majority or minority, regardless of who is in the White House. 
Always, you know, every year trimming, trimming, trimming, 
finding good ways to stretch our dollars and identify dollars 
that aren't succeeding.
    The President has proposed that. Former Congressman Blue 
Dog Jim Turner and I introduced that bill a decade ago, still 
believe in it.
    Can you give us your thoughts on some of the tools like 
sunset that can be used, you know, by both parties working 
together to try to streamline this budget?
    Mr. NUSSLE. I commend your leadership on this. It is one of 
the reasons why it is in the budget as one of a number of 
reforms we can look at including legislative line-item veto, 
other budget reforms that can get more ownership of the 
spending challenge out there. You have identified one that is a 
particular challenge, and that is programs continue to, you 
know, blissfully continue on into perpetuity without having the 
kind of oversight that they are really required by Congress. 
This gives, I think, a heads up, at least, to Congress on a 
regular basis of what they are.
    We do the same thing in the Administration. In fact, the 
gentleman from Texas just referenced it as part of what's 
called the program analysis rating tool, where now 96 percent 
of all government spending programs are under this system where 
every year they are reconsidered, they are looked at, are they 
getting their results, are they meeting their goals? Do they 
need more money, do they need less money? Is there a place that 
they could be done more appropriately? You know, all sorts of 
things like that.
    So over the course of the last 8 years in particular, 7 
years, we have started to do this from an Administration 
standpoint. But obviously, more work could be done and Congress 
certainly has a responsibility here under Article I, and I 
think the sunset commission is one of the ways that can kind of 
highlight that and bring them in front of both Congress's and 
the Executive Branch's attention.
    Mr. STARK. You know, maybe we could start the sunset 
commission focused on the programs that have the lowest ratings 
as far as effectiveness and use of dollars and all that so we 
can sort of start at that point as well.
    Mr. JOHNSON. The other one is the ones where the programs 
have payments that are inappropriate, you know, improper 
payment programs. There are a number of them that GAO 
highlights and we pay attention to those as part of this as 
well, and we are working as part of OMB to--and have had some 
great success in improving the payment so that they are not 
improper payments, and making those reforms.
    More needs to be done. More can actually be analyzed. As we 
analyze even more, we are finding places where improvements can 
be made. So, a lot of good improvement has been made in those 
areas.
    But you are right to highlight it and that is the reason 
the President puts it in the budget.
    Mr. BRADY. Right. Thank you, Director. Thank you, Chairman.
    Mr. STARK. Would the distinguished gentleman from Alabama 
like to inquire?
    Mr. MCCRERY. Thank you, Mr. Chairman.
    Mr. Director, it is good to see you again. I will try to be 
brief, in light of the fact that I have some colleagues and we 
have votes on the floor.
    Let me start out with one observation and you may remember 
that back in I believe it was July of last year the House 
passed the CHAMP Act. The primary thrust of the act was to keep 
the SCHIP program going in the direction that it needed to go. 
But there were a number of provisions in the act and a lot of 
them were hotly criticized by the hospital lobby. A lot of them 
were hotly criticized by a lot of the private health care 
sector as being way too draconian. So, I wanted to make a few 
comparisons while you are here today.
    The CHAMP Act that was so hotly criticized had a 6-month 
freeze on payments for long-term care hospitals. Is it correct 
that the budget that the Administration has submitted has a 3-
year freeze?
    Mr. NUSSLE. Yes.
    Mr. MCCRERY. The CHAMP Act that was so hotly criticized 
made a number of reductions to inpatient rehab facilities and 
their reimbursement rate for certain post acute conditions. 
Does the Administration's budget go further than the CHAMP Act 
went in that regard?
    Mr. NUSSLE. Further in what way?
    Mr. MCCRERY. Freezes on patient--on payments for inpatient 
rehab facilities? There was a range of reductions and freezes 
in the CHAMP Act. I am trying to see if the Administration's 
budget goes further in the CHAMP Act.
    Mr. NUSSLE. That one, I am not familiar with in the CHAMP 
Act. But, yes, we do freeze those for providers for 3 years.
    Mr. MCCRERY. Okay. The CHAMP Act included a 9-month market 
basket reduction for those facilities. Is it also a 3-year 
freeze in the Administration's budget?
    Mr. NUSSLE. I believe so, yes.
    Mr. MCCRERY. I point that out simply because what we heard 
from the hospital lobby, what Chairman Stark heard from the 
hospital lobby was that our cuts was that our cuts were 
unacceptable, they were draconian, they would cause people to 
lose services, they would do all kinds of damage, that senior 
citizens would be out on the street.
    So, I don't see a lot of people necessarily here from the 
industry. But I hope they will take note of the fact that this 
budget goes further.
    The second observation----
    Mr. NUSSLE. How did you explain it, by the way, so that I 
can help explain it to them?
    Mr. MCCRERY. We will compare notes, Mr. Director.
    Let me turn to the subject of Medicaid, because I remember 
when you were chair of the Budget Committee that I was honored 
to serve on with you, you were very vigorous about raising a 
lot of your concerns about the Administration putting too sharp 
an ax to Medicaid and I remember you raised concerns about your 
state of Iowa. I remember during your campaign for Governor, 
you certainly talked about your commitment to Medicaid.
    I remember a distinction that you would often draw when you 
were chair of the Committee was that we need to pare back 
Medicaid, we need to make efficiency savings in Medicaid. But 
you always drew a line at making cuts that would impact 
services and benefits for patients.
    Can you make the representation to the Committee on Ways 
and Means that none of the proposed Medicaid changes in the 
President's budget would have the impact of reducing services?
    Mr. NUSSLE. I can. In particular, we make increases in, for 
instance, what the President proposed just a year before in 
SCHIP. You know, again, it depends on how Congress will handle 
some of these proposals. As we heard today, it appears Congress 
may not just take these proposals that we have made.
    But again the savings we are looking for as a way to try 
and bend the growth curve in both Medicaid and Medicare is for 
a purpose and that is to get some of this growth rate that is 
unsustainable on a little bit better rate of growth.
    Mr. MCCRERY. But now, some of those savings will actually 
require the states to contemplate reducing their scope of 
services in some instances, won't they?
    Mr. NUSSLE. That will be a decision the states will have to 
make, because obviously there is a match. They make a lot of 
eligibility determination at the state level, as you know. So 
these are decisions that states may also be making. But from a 
Federal level, we believe that the increases that we are 
providing are for the right reasons and for the right 
population of people who need these kinds of services.
    Mr. MCCRERY. Well, let me just add, Mr. Director, because 
my time is limited, the debate that you had with Ms. Tubbs 
Jones earlier was, I think, an illustrative debate. But I think 
it focused on one aspect of people, people who are economically 
empowered to make choices. We can have a great philosophic 
debate about whether those people would have a greater or 
lesser range of discretion.
    The problem is, this budget reaches a whole lot of people, 
low income people, people who certainly don't have the capacity 
to make judgments or make economic choices. What I certainly 
want you and the Administration to take from today, there are a 
lot of people who are just not as empowered as you would be, as 
some of us would be, to make choices. This budget, as I read 
it, cuts our capacity to deliver services to some of those 
people and that is what some of us find objectionable.
    I will yield back the balance of my time, Mr. Chairman.
    Mr. STARK. Thank you. Would the gentlelady from 
Pennsylvania like to inquire?
    Ms. SCHWARTZ. Yes. Thank you, Mr. Chairman.
    Since we do have votes and our time is limited, I wanted to 
follow up on just a couple questions that you won't be 
surprised that I asked last week at Budget. The discussion 
about--I think it falls, both Mr. Davis talked about and Ms. 
Tubbs Jones, which is really the major issue about how we help 
Americans to be able to afford health insurance coverage and 
there are longer term questions about how we actually might 
make sure that they are healthier as a result and that they 
actually receive quality care.
    But the issue about accessibility and cost, you know, last 
week I raised some questions about the President's proposal, 
the Administration's proposal to extend tax deduction for 
individuals. We talked about it last week and I wondered about 
the fact that, really, the way the proposal is structured, it 
really is not the most cost efficient, certainly not as cost 
efficient as the SCHIP program, which the President and the 
Administration objected to extending to four million more 
children. It is more costly to the budget, to the taxpayer. It 
actually is not targeted to low income, middle income folks. It 
could be used by anyone and it has an enormous crowd out factor 
which has been acknowledged by CBO and was a huge concern of 
the President's when we were talking about children.
    So, the fact that this tax deduction could be used by the 
wealthiest Americans, particularly because it is a tax 
deduction and not a tax credit and not a refundable tax credit, 
it is extremely difficult in the individual marketplace for, as 
Mr. Paulson said, a waitress to be able to afford private 
health insurance on a salary or wages of $25,000 a year for her 
after taxes, to find $10,000 to buy a health policy for her 
family, and then has to wait for taxes, which she may not even 
have any tax deduction because she doesn't pay enough taxes to 
have a tax deduction. She doesn't benefit at all, at all.
    If she has an illness in her family, she won't be able to 
buy individual health insurance. So, she has choices, really 
not at all.
    Mr. NUSSLE. But she probably isn't getting health insurance 
through her employer, either.
    Ms. SCHWARTZ. Right, but it is a pretense to suggest that 
she will either be able to afford it or find private health 
insurance with your proposal.
    So, last week, you said you were open to thinking about 
this differently, given that these are realities, in the 
marketplace and in terms of cost. Have you given it some more 
thought about what you might do differently?
    Mr. NUSSLE. The Administration is open to that, and you are 
going to hear from Secretary Leavitt this afternoon.
    Ms. SCHWARTZ. We will discuss that as well.
    Mr. NUSSLE. He will probably answer these questions even 
more broadly and succinctly than I can.
    But I am just saying that, yes, we are open to the fact--
the President has suggested that he is even open to a credit 
approach to it. But he started with this proposal and wants to 
hear what Congress has to say.
    Ms. SCHWARTZ. Well, it is the same proposal that we had 
last year that didn't go anywhere. I would suggest it would 
have been helpful to have some of this discussion over the last 
6 months rather than now. But we will have it now.
    I would also say, and I know we will ask Secretary Leavitt 
more this afternoon, is that the same time as we are really not 
making health care more affordable or accessible to lower 
middle income folks, we are cutting hospitals. When the 
President suggested, look, Americans if they don't have 
insurance can go to the ER, on the other hand, he is actually 
cutting access to the ER, potentially, by cutting hospital 
funding.
    So, I think these are major questions facing us and these 
are not serious proposals about how we are going to help get 
health care to Americans who need it.
    So, with that, I will yield back. I think a lot more work 
needs to be done. Thank you.
    Mr. STARK. I thank the gentlelady for yielding back and 
recognize the gentleman from New York for a couple minutes we 
have remaining.
    Mr. CROWLEY. Thank you, Mr. Chairman. Thank you. I will try 
to be very, very brief. Mr. Nussle, welcome to the Committee.
    Let me just read a couple of comments from some of my 
colleagues on the other side, on your side of the aisle. Quote, 
``gamesmanship and gimmicks like we saw last year''--that is 
from the Senate Budget Ranking Member, Senator Gregg from New 
Hampshire.
    Peter King, the Ranking Member of the Committee on Homeland 
Security, called Mr. Bush's proposed cuts to Homeland Security 
grants, quote, ``unacceptable'' and funding for local grants 
was, quote, ``about more than just dollars, it is about life 
and death'', end quote.
    Ranking Member of the Armed Services Committee, Duncan 
Hunter, is quoted as, ``it is disappointing that the 
Administration did not request funding to cover the full cost 
of the war in fiscal year 2009'', end of quote.
    Ginny Brown-Waite, congresswoman from Florida, ``we should 
not balance the budget on the backs of veterans. They 
sacrificed for all Americans and should not be forced to pay it 
again for health care that was promised when they agreed to 
serve our Nation.''
    One last quote. ``It is foolish to include the money every 
year. It was not the right thing to do'', end quote, to include 
the AMT tax revenue in the budget blueprint for 2009. That is 
from House Minority Leader Roy Blunt.
    I can go on and on.
    As mentioned before, not properly costing out the cost of 
the war within this budget, I think, is unconscionable. But 
having said that, you have raised income taxes, you failed to 
repair the AMT, repeal the tax deduction for state and local 
income tax, levy new taxes on people with IRAs, and create 
billions of new taxes for veterans seeking, of all things, care 
at the VA.
    Having said that, is this a document that you can really 
say that President Bush is proud of, that this House can 
support if this budget were offered on the floor?
    Mr. NUSSLE. Yes. It will be interesting to see how you 
handle something such as Homeland grants when there are, for 
instance, about $11 billion worth of grants that are currently 
in the pipeline that are just not being spent, and you are 
going to pile more grants on top of that in an untargeted way.
    Mr. CROWLEY. So, let me ask you this question, Mr. Nussle, 
then. Are the Republicans in the House that I referred to 
incorrect in their assessment of the Bush budget?
    Mr. NUSSLE. I think all of them have explanations. I--
certainly, everyone has a right to their opinion.
    Mr. CROWLEY. So, they are incorrect?
    Mr. NUSSLE. I believe each one of these has an explanation. 
For instance, why we don't put the war funding in. It is 
interesting that a Member will say that they want the war 
funding in, but they themselves couldn't tell you how much it 
will cost a year and a half from now----
    Mr. CROWLEY. I think we have a more reasonable estimate of 
what the cost of the war would be.
    Mr. NUSSLE. Great. It will be interesting to see if----
    Mr. CROWLEY. I think we can both agree that $70 billion is 
just not going to cut it.
    Mr. NUSSLE. We look forward to seeing that in your budget 
then.
    Mr. CROWLEY. With that, Mr. Chairman, I yield back the 
balance of my time.
    Mr. NUSSLE. We look forward to seeing that in your budget 
then. That will be very interesting.
    Mr. STARK. Mr. Director, I was going to ask some questions 
but I forgot my paper bag. So, I will just have to excuse you 
and----
    Mr. NUSSLE. I've got an extra one.
    [Laughter.]
    Mr. STARK. Okay. Thank you for your patience and your good 
humor and I will look forward to wrestling with you as we go 
along during the rest of the year.
    Thanks very much.
    Mr. NUSSLE. Thank you, Mr. Chairman.
    Mr. STARK. We appreciate you and your staff, your patience 
with us. Thanks very much.
    The hearing is adjourned.
    [Whereupon, at 12:24 p.m., the hearing was adjourned.]
    [Questions for the Record follow:]
           Questions for the Record posed by Rep. Devin Nunes
Director Nussle:

    I continue to be concerned with the Administration's pursuit of 
legislation that would authorize the San Joaquin River Settlement. In 
fact, the current draft of the legislation, H.R. 4074, includes a 
massive tax increase on the American consumer. Yet, OMB and the 
Department of Interior are unflinched by this and continue to push the 
legislation behind closed doors. Indeed, I have documentation that 
proves this point.
    Furthermore, your office continues to advocate spending over 1 
billion dollars in a vain attempt to restore salmon to the San Joaquin 
River--a restoration in which the settling parties fully admit that if 
500 fish return, then it was worth the cost. Again, considering our 
budget situation and the continued deficits we face, I do not 
understand why OMB is advocating this policy. With that, can you 
provide answers to the following questions:

    1.  Why does the Office of Management and Budget continue to 
support the San Joaquin River Settlement legislation after they 
included a tax increase to pay for the project?
    2.  Why did the Office of Management and Budget authorize 
expenditures to conduct public scoping meetings on the San Joaquin 
River Settlement if Congress has not authorized the program yet?
    3.  Why did the Office of Management and Budget include 7 million 
dollars in the Fiscal Year 2009 budget if Congress has not authorized 
the program yet?
    4.  Considering the current budget environment, why does the Office 
of Management and Budget support a policy of spending 1 billion dollars 
for 500 salmon?


    [Answers to Questions for the Record posed by Mr. Nunes 
follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    [Submission for the Record follows:]
                     Statement of Joseph E. Powell
    Let me start by writing that I appreciate the opportunity to submit 
this letter regarding the FY 2009 Executive Budget Proposal and be 
heard.
    However, and truthfully, I cannot believe what I have learned about 
it. To me, it does not seem at all rational to say the least. As we are 
staring into the teeth of a domestic recession, our Chief Executive 
Officer puts together a so-called budget that increases deficit 
spending and totals 3.1 trillion dollars. This is totally unbelievable. 
This should be stopped dead and a new rational budget be formulated.
    We are told that the Administration wants to make up the deficit 
spending by cutting domestic programs. Which to me (and many others 
like me) is not acceptable and also not the least bit rational.
    A temporary tax rebate measure made up of more borrowed money? De-
valuing our own currency to the enjoyment of all of our competitors in 
the market place.
    Spending out of control in Iraq. Billions of dollars missing/
unaccounted for. No clue where it is. And the war dragging on for five 
(5) years.
    Just allow me a word on the war please. If this country is involved 
in a life or death ideological struggle of the age--then use the 
nuclear weapons in our arsenal and put an end to the struggle a 
positive winner--do not drag it out for generations/forever spending 
the priceless blood of our youth as if it were salt water and 
bankrupting our country's treasure.
    The sub-prime mortgage debacle--another great injustice allowed to 
happen by de-regulation.
    Adding 1100 Diplomats to the Federal payroll. Just what we need--
more overhead.
    I should say this spending is anything but Conservative. It appears 
FAR RIGHT WING RADICAL EXTREME NEO-LIBERAL to me.
    Stop spending all of our money overseas attempting to build nations 
and markets for only those who are already rich beyond belief.
    Spend our money here at home. Our domestic programs need to be 
bolstered and made solvent. Social Security Solvency and Universal 
Health Care For All Citizens (Medicare For All) needs to happen NOW. 
Every other major country in the world has it and knows it is the right 
thing for a government to do for it's general population. Our money 
buys $3.00 a gallon gasoline/expensive fossil fuels to heat our homes 
and enriches and provides cradle to grave domestic care for those we 
are purchasing from. That in itself is mad.
    The way I see it we should install Trade Regulations that level the 
field in the world market. Doing so will create incentive to produce 
more here at home. Domestic business will prosper. When the appropriate 
Trade Regulations take affect and we purchase fewer products from 
overseas, our overseas trading partners will lose market share and will 
increase the cost of their products to consumers within their borders 
to fund their corporations--further leveling the field. They will then 
borrow from us to keep their corporations in business.
    Stop selling out our country by making it more profitable for 
business (including manufacturing) to move out of country.
    People living in this country have a much higher cost of living 
than those people in 31rd world overseas economies. People cannot earn 
a living in this country being paid $1.00 to $3.00 per hour--they need 
a good job that pays a good wage and at least a living wage as opposed 
to a minimum wage.
    Here in Northeast Ohio the economy (especially my economy) is 
horrible. Last year was the worst year in business that I can remember. 
50% down from the year previous.
    It seems every measure taken by every segment of our government is 
another attempt (greater than the previous) to euthanize our private 
sector domestic economy.
    This needs to be fixed and it's going to take a government that is 
responsive to the people to fix it.
    This Administration and it's policies cannot end quickly enough to 
suit me.

            Yours truly,
                                       Joseph E. Powell, President,
                       J.E. Powell Technical Services Company, Inc.

                                  
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